Tim R. from Little
Rock, AR asks: Good afternoon, Mitch, I’d like to hear your thoughts on the
big-spending bills moving through Congress now. What do you think the impact
will be on growth, the stock market, and inflation? Thank you.
Mitch’s Response:
Thanks for emailing, Tim. There are two major spending
packages to weigh in answering your question, the $1 trillion infrastructure
bill and the $1.85 climate and social-spending bill. Interestingly enough, the
initial price tag estimate for the latter bill was $3.5 trillion, which ended
up being higher than the total overall spending we’re likely to see from both
packages combined. It’s an old lesson in politics – focus on what is done, not on
what is said.1
The short answer to your question, in my view, is that we
should not see a significant impact on growth, the market, or inflation. The
spending bills are large, but much of the money will be deployed over years and
years – not all at once. Another factor to consider is that the spending will
be spread across various sectors and industries, meaning there will not be one
major winner when the bills are signed into law.
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On the infrastructure front, we could see some tailwinds for
the Industrials and Materials sectors, as the bill includes $110 billion for
roads, bridges, and other major projects combined with $39 billion for public
transit and $66 billion for rail maintenance and expansion (mostly for Amtrak).
There could also be a boost in select metals as about $15 billion will go
towards electric vehicles (EV) and EV infrastructure. Telecom and Utilities
could see a boost as well, as $65 billion will go towards broadband
infrastructure and $73 billion will to updating and expanding the power grid.
As for the $1.85 trillion climate and social-spending bill,
a big portion of the spending will go to temporarily expand the child tax
credit (for another year), sending funding to states to set up universal pre-K
programs, and over $100 billion to states for child care spending (for low-income
families at first, but then expanded to higher-income families after three
years. On the climate front, the biggest expense is for a series of tax credits
that incentivize reducing carbon emissions.
The trillion-plus dollar figures being thrown around may
seem like they would have major implications for growth, the stock market, and
inflation, but I do not see them as having a big, outsized impact. Because the
spending is spread out over several sectors and years, I believe we will see a
modest tailwind to growth which should support the stock market but not
fundamentally alter the trajectory of the economic expansion.
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Disclosure
1 Wall Street Journal. October 30, 2021. https://www.wsj.com/articles/biden-frameworks-new-programs-face-expiration-dates-11635603466?mod=politics_lead_pos11
2 Wall Street Journal. October 28, 2021. https://www.wsj.com/articles/infrastructure-bill-2021-what-11627515002
3 ZIM may amend or rescind the guide “How to Build Your Ultimate Retirement Portfolio” for any reason and at ZIM’s discretion.
4 ZIM may amend or rescind the guide “How to Build Your Ultimate Retirement Portfolio” for any reason and at ZIM’s discretion.
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