RPT-Wall St Week Ahead-Investors Consider Washington Talks After Big Rally in Infrastructure Shares
(Rehearsal of the SCHEDULED COLUMN originally released on June 4, no change)
NEW YORK, June 4 (Reuters) – Investors will be watching Washington over the coming week for a disproportionate rally in shares of companies that would benefit from President Joe Biden’s $ 1.7 trillion infrastructure plan has more leeway.
Washington’s spending expectations on bridges, roads and tunnels bolstered so-called value stocks, particularly industrials and materials, both up about 20% this year, before the gain of 12.5% for the S&P 500.
Among the biggest winners are shares of United States Steel Corp, up nearly 200% year-to-date, while shares of steel producer Nucor Corp have gained around 104%.
These large gains could leave many industrial and materials stocks vulnerable to a massive sell-off if a big spending bill in Washington does not materialize, said John Mowrey, chief investment officer of NFJ Investment Group, which has $ 8.2 billion under management. dollars in assets.
“It’s scary how much (of the expense bill) is already built into the market,” he said.
US Transportation Secretary Pete Buttigieg has circled June 7 as the date by which negotiations with Senate Republicans must have “clear direction.” Otherwise, he suggested, Senate Democrats could come up with a more focused infrastructure bill.
Republican leaders have approved about $ 257 billion in new spending, while calling major tax hikes to fund construction of roads, bridges, water pipes and other projects a non-move.
Progressive Democrats, meanwhile, warn they would block any legislation they deem inadequate.
Talks continued between Biden and Senator Shelley Capito, the top Republican negotiator.
Mowrey is focusing on businesses he believes are undervalued and would benefit from a technology-driven infrastructure upgrade, like cell phone towers and data centers.
Shares of American Tower Corp, one of Mowrey’s holdings, rose 17% for the year.
Investors embraced infrastructure stocks at a time when concerns about rising inflation, continued disruptions to global supply chains from the coronavirus pandemic, and accommodative central bank policies helped push commodity prices at multi-year highs.
Investors trying to gauge the inflationary threat will be keeping a close watch on US consumer price data, which will be released on June 10.
A much higher than expected CPI triggered a sell off in the market last month, dragging infrastructure stocks with it as many fear that rising inflation could force the Federal Reserve to start loosening measures soon. stimulus.
Still, exchange-traded funds that bet on infrastructure stocks were the only type of thematic ETFs to attract positive net inflows in May, according to data from State Street Corp. Infrastructure ETFs rose 76.1% for the year through May, more than double the return from other thematic bets like robotics or digital security.
The utilities sector could stand to gain the most in the long run with about $ 384 billion in federal spending coming from Biden’s proposed bill, Wells Fargo noted in an analyst report. However, rising Treasury yields will likely leave the sector unattractive over the next six to 18 months, the company said.
“The full ramifications of the US jobs plan will take several years to turn into growth for utility companies,” the company said.
Investors skeptical of Congress passing an infrastructure bill should focus on areas such as clean energy, auto parts and manufacturing, and farm machinery, which have not had the same boom as commodity-related companies, said Brian Sponheimer, a portfolio manager of the $ 2.4 billion Gabelli Dividend & Income Trust fund.
Auto companies are likely to continue to benefit from above-trend demand until at least 2023, as the global semiconductor shortage and lack of inventory reduce supplies, said Sponheimer, whose position in the supplier of Genuine Parts Co is one of the ten largest holdings in its fund.
If lawmakers fail to reach a bipartisan infrastructure deal, “there is reason to believe that there are supply chain challenges that are pushing growth for pockets of the market through 2022 and 2023.” , did he declare. (Reporting by David Randall; Editing by David Gregorio)