Analysis: Infrastructure bill could fuel stocks, but investors temper enthusiasm

By Lewis Krauskopf and David Randall

NEW YORK (Reuters) - A U.S. government plan to upgrade the nation's infrastructure could further fuel the stock market's rally, but skepticism about a massive spending package navigating political obstacles and the speed of any benefits filtering into the economy stand to temper any enthusiasm.

A wealth of companies, including in construction, materials, and even technology, could see a revenue boost from a spending package that would potentially aim to repair roads and bridges, invest in internet connectivity and address climate change.

President Joe Biden will travel to Pittsburgh next week to unveil the infrastructure plan, which could have a price tag as high as $4 trillion.

But investors say political obstacles exist to passing a bill - particularly if it includes tax increases to fund it - while they expect spending on projects could take years in some cases.

“If we get a sizable package through, it would contribute further to the already positive economic rebound that we are seeing and the belief that stronger fiscal support for the economy could continue in the coming years,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors.

But, Baird said, "it still has a long way to go to get through a Congress that is very much divided and will have significant questions about how to pay for it.”

Biden's plan is expected to be split between an initial package that deals with traditional transportation projects and a second one that addresses domestic issues, such as universal prekindergarten, national childcare and free community college tuition.

The White House is seeking to advance its agenda on the heels of pushing through a $1.9 trillion coronavirus relief bill, which has helped give the latest boost to a stock market that has surged about 74% since the throes of the pandemic in March 2020.

There are signs that equities are already incorporating optimism over an infrastructure package.

A basket of infrastructure stocks primarily consisting of construction materials, machinery, and construction and engineering firms returned 27% since the Georgia runoff elections in early January gave Democrats full control of the Senate, Goldman Sachs said in a note published Friday. The S&P 500 rose about 5% over that time.

"Stocks have started to price in that there is a good likelihood of infrastructure spending coming down the pike," said Eric Marshall, a portfolio manager at Hodges Capital, which holds shares of Eagle Materials, a stock that has gained about 23% this year.

Marshall sees more opportunity in companies that would benefit from a build-out of infrastructure for electric vehicles like charging stations. Among the companies in his portfolio is Cree Inc, which makes silicon substrates used at charging stations.

But some are skeptical that an infrastructure package will easily sail through Congress, where Biden's Democratic party holds a slim majority.

Key will be whether the package is linked to tax increases, such as lifting the levy that companies pay, which also could dampen investor excitement for the spending package.

"What could be an issue for markets ... is if tax rates increase meaningfully for corporations," said Sameer Samana, senior global market strategist at the Wells Fargo Investment Institute.

While infrastructure spending has been portrayed as an issue supported by both the Republican and Democratic parties, President Donald Trump was unable to push through a package during his term in office.

Even if an infrastructure bill were to pass, investors said the spending stands to be allocated over years, so the benefits to companies may not be immediate.

“There is a healthy bit of skepticism right now with regard to the markets in terms of how they are thinking about infrastructure,” said Jack Janasiewicz, portfolio manager at Natixis Investment Managers. "Even if it does get done, the shovel-ready projects, doling out the contracts ... there’s a significant time lag to some of that."

(Reporting by Lewis Krauskopf; editing by Megan Davies and Steve Orlofsky)