Mitch on the Markets

November 22nd, 2021

How Will New Infrastructure Spending Affect the Markets?

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On November 15, President Biden signed the bipartisan, roughly $1 trillion infrastructure bill into law. This level of infrastructure spending marks the largest federal investment in infrastructure in over 10 years, and largely focuses on traditional forms of infrastructure: roads, bridges, power grids, etc.

Plenty of politics came into play for getting this law passed – I will not cover them here. But now that the bill has become law, investors can set aside political implications and focus on pure policy, specifically how the new spending might affect the economy and markets.1


Are You Looking for the Right Time to Invest?

Whether you are looking to invest for retirement or just for your long-term financial success, we offer all of our reader’s insight on key forecasts to look out for.

As the infrastructure bill becomes a law, it will have an impact on the market. Just how it will impact the market is unknown, and it is these unknowns that make trying to time the market so risky. Instead, we advise investors to diversify their portfolios and define their financial roadmap. To help you do this, I am offering all readers our just-released Stock Market Outlook report. This report contains some of our key forecasts to consider such as:

If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today! 

IT’S FREE. Download the Just-Released November 2021 Stock Market Outlook2


First, let’s dig into what’s in the infrastructure bill, which ultimately amounts to an additional $550 billion above projected federal spending on roads, bridges, expanded broadband access, and more. Here’s a roundup of the new spending:

In terms of economic impact, $1 trillion is approximately 5% of GDP – not a significant boost, but also not negligible. The key for measuring economic impact is understanding when the money will be spent and how it will be paid for.

Regarding the ‘when,’ this new spending will not happen all at once. States should see a major boost in core highway funding relatively soon, but money for most of the other projects could take months or perhaps even years, arguably minimizing the short-term economic impact.

Spending on modernization of public transit, for instance, will have to wait for Congress to pass a spending bill, which will likely come later in the year. $120 billion of the new funding comes in the form of competitive grants, which means the government will need to roll out grant programs and companies will need to bid for the jobs, like bridge replacements or new rail lines. The grant program and approval process could also take about a year. Incrementally higher spending over long periods will likely not create a material boost to GDP.

Regarding the ‘how’ the money will be raised, it will come from an assortment of revenue streams, but none of them include higher taxes – a plus for the economy. Some of the money has already been appropriated, including $200 billion in repurposed funds meant for Covid-19 relief. $50 billion will come from delaying a rule regarding Medicare rebates, and $50 billion more will come from states that did not use unemployment insurance supplemental funds. In short, no new taxes and no major near-term increases to the deficit should also mean relatively minimal economic impact.

As far as markets are concerned, a relatively muted economic impact likely translates to modest market impact, which I would argue is already priced into stocks. It has been widely known for some time now that the infrastructure bill would almost certainly pass, which means markets have already discounted its impact on earnings and growth, in my view. Investors should not expect some brisk tailwind now that the bill has been signed into law.

Bottom Line for Investors

In my view, the passage of the infrastructure bill is not a zero-impact event, but it is also not a major market mover that should drive the next leg of the bull market. I think it is perhaps best framed as a ‘modest tailwind’ for the economy and markets, with some sectors (Industrials, Materials, perhaps Utilities) faring better than others.

The real key takeaway for investors, in my view, centers around an idea I write about a lot in this space: how did reality compare to expectations? In the case of infrastructure, the bill started as a $2.3 trillion spending package that included tax increases to pay for it. Higher taxes and higher deficits could arguably be an issue for stocks, but the reality of the infrastructure law is that it is less than 50% of its original size with no tax increases and fairly modest new deficit spending – a reality better-than-expectations, in my view, which I see as a positive for markets.

This is proof that you never know what direction the market is headed. As a long-term investor, we want you to feel comfortable that your investments are safe through the market’s ups and downs. To help you stay on top of this, I am offering all readers our Just-Released November 2021 Stock Market Outlook Report.

This report looks at several factors that are producing optimism right now and contains some of our key forecasts to consider such as:

If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today! 

Disclosure

1 Wall Street Journal. November 15, 2021. https://www.wsj.com/articles/infrastructure-bill-2021-what-11627515002?mod=article_inline

2 Zacks Investment Management reserves the right to amend the terms or rescind the free Stock Market Outlook offer at any time and for any reason at its discretion.

3 Zacks Investment Management reserves the right to amend the terms or rescind the free Stock Market Outlook offer at any time and for any reason at its discretion.

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This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.

Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.

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