There are a few stocks that look like they will do well from company spending no matter who wins the election for president.
The S&P 500 index has been giving a discount to stocks that directly benefit from investments in infrastructure and manufacturing. A July 19 BofA Global Research note says that they should still benefit from a “capex boom” that would probably outweigh any possible rollback of Biden’s policies if former President Donald Trump wins the election.
BofA equity and quantitative analysts wrote in a note that clients are worried that President Biden’s programs will be cut back under Republican leadership because the government will play a part in boosting manufacturing investment in 2023. But “our industrials team thinks that cuts to green programs would hurt them more than cuts to manufacturing.”
Biden said on Sunday that he was dropping out of the race for president and backs Vice President Kamala Harris as the Democratic Party’s presidential nominee. Even though there was a lot of talk about the “benefits from fiscal stimulus in 2023,” BofA said that they were not that big compared to the S&P 500’s overall capital expenditures.
A study by BofA found that the S&P 500’s capital expenditures were expected to be 10 times bigger than fiscal stimulus through 2031. This made it “likely the more important variable to watch.”
Bank of America strategists said, “Reshoring, industrial policy, and historic underinvestment in infrastructure point to a ‘old school capex boom ahead.'” “We think that reshoring and ongoing investments in infrastructure will help old economy cycles for a number of years.”
Their note says that infrastructure stocks in the U.S. stock market are “cheap” compared to the S&P 500 index.
Bank of America analysts said, “COVID, geopolitics, and trade wars have made the case for localizing supply chains stronger than ever.” They talked about “historic underinvestment in infrastructure” and policies like the CHIPS Act, the Infrastructure Investment and Jobs Act, and the Inflation Reduction Act that deal with businesses.
Bank of America strategists said, “The question is: what’s priced in?” “We think that structural tailwinds are more important than possible reverses of fiscal stimulus.”
Their note said that infrastructure-related stocks were trading at a bigger discount to the S&P 500 than they were at the peak in 2007 before the global financial crisis.
The Bank of America strategists said, “In our quantitative tactical framework, industrials conglomerates screen as a ‘opportunity,’ while electrical equipment screens as a ‘value trap.'”
The Dow Jones Industrial Average led the rise in the U.S. stock market on Monday.
DJIA -1.25% going up 0.3%, the S&P 500
SPX -2.31% going up 1.1% and the tech-heavy Nasdaq Composite going up 1.
COMP -3.64% going up 1.6%.
The industrials sector of the S&P 500
FactSet data shows that SP500.20 -2.17% went up a sharp 1.1% on Monday.
FactSet data show that the S&P 500 has gained 16.7% so far this year, which is more than the 10.7% gain for industrials so far this year. The tech sector has done very well this year, with a 29% rise through Monday making it the best-performing sector of the S&P 500.
