By Tim Courtney, Chief Investment Officer
Last week, the Senate passed the Bipartisan Infrastructure Framework, a roughly $1 trillion bill for spending on transportation projects, road and bridge repairs and upgrading the nation’s power grid. The plan also includes several initiatives to integrate green technology into public transportation and energy infrastructure.1 If passed by the House of Representatives, the Congressional Budget Office estimates net new spending would add around $256 billion to the nation’s deficit over the course of 10 years.2
Spending on infrastructure often gets bipartisan support (as this bill did) since most agree these projects are largely the government’s responsibility. Even with that agreement, it seems infrastructure can fall low on the priority and budgeting lists. It shows up in delays and extra costs for things like the recent shutdown of the Memphis bridge on I-40, a major transportation artery for the U.S.3
We hope this spending will be targeted on projects that maintain current efficient transportation and create new efficiencies for potential growth. This can be challenging as we’ve witnessed the difficulties in finding shovel ready projects before and can remember the “bridge to nowhere” project a little over a decade ago.
In the movie “Field of Dreams,” a baseball field was constructed in the middle of cornfields in rural Iowa. If that is all that ever happened, there may have been a short-term boost to the economy as Kevin Costner’s character spent money on materials and labor. However, once the baseball field was built, people began coming to the field and new growth was created as the movie ends. An actual game was recently played there between the White Sox and the Yankees.
In other words, for this spending and debt to be worthwhile, it must create lasting efficiencies and growth. What does all of this mean for our investments? So far, the market has shrugged off infrastructure rhetoric, just as it has with current inflation readings and record earnings. The reaction may be so slight as it’s still unclear how the bill will look once it makes its way through the House and tax law changes may be following this legislation.
With the bipartisan agreement, materials would be one area that could see a meaningful boost in demand. In some ways, the market has already priced in some of the impact of the infrastructure bill with higher prices for copper, steel and aggregates. This should help the profitability of materials producers. Copper especially could benefit due to its integral role in renewable energy.4
Over the next few weeks, we will continue to monitor this space and adjust our investment strategy accordingly. For any questions, please contact your Exencial advisor.
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