by Bryan Perry

November 3, 2020

As election results pour in on the evening of November 3 – and probably into the early morning of November 4, when Wall Street starts to open – there will be great consternation in the markets about the winning and losing sectors based on the potential outcome for the Senate and the White House, assuming that the House of Representatives remains in control of the Democrats (that much we pretty well assume).

A Democratic sweep of Congress and the White House will fuel perceptions of major policy changes and a big progressive shift in healthcare, energy, defense, banking, trade, immigration, and foreign affairs, for starters. Early estimates see a Blue Wave resulting in only slightly higher total spending than a Trump victory, in terms of percentage of GDP, but a big difference in terms of the proposed spending mix.

Federal Debt Scenarios Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The Committee for a Responsible Federal Budget (CRFB) is running three models to forecast future spending – a low, central, and high estimate (above). Using the central model as a template, they show where both Trump and Biden expect to impact tax revenue and spending allocation (below).

Candidates' Proposals Summaries Table

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

These are, at best, rough estimates, not knowing the eventual make-up of Congress and the Presidency, but one line item that jumps off the page is that no matter what the outcome of the election, there is going to be somewhere between $2.7 and $4.45 trillion spent on Infrastructure & Other Domestic Spending.

Public Infrastructure Spending Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

There is serious Congressional mojo for more spending on fixing roads, bridges, ports, clean water, storm drainage, trains, transit systems, broadband, EV charging stations, schools, hospitals, energy transmission, electric grid improvements, etc. There is also great division over how much should be spent on each.

If Trump wins and the House and Senate are both run by Democrats, then I see no problem with Trump approving whatever amount of money is needed to satisfy all political interests. It’s in his DNA to deficit spend on building projects. His latest tweet said it all, “Go big or go home.”

If Biden wins and the House and Senate are both blue, then every bit, and probably more, of the targeted $4.45 trillion will be spent, with the high estimate from CRFB being $5.5 trillion.

If Biden wins and the House remains blue and the Senate remains red, then a bill valued somewhere in between will likely be passed. But leave no doubt, infrastructure is something the American electorate has wanted Washington to act on for a decade, and politicians that don’t pay a repair bill will be on the outs.

Under this scenario, investors should be able to score big 2021 returns by allocating a portion of their portfolio assets to companies that will be on the receiving end of those trillions of dollars being budgeted for the next 10 years. Most of the projects noted take multi-years to complete, making this investment proposition on the level with the bull market in digital transformation that has been all the rage for 2020.

This will be not only a 10-year plan to upgrade existing infrastructure and add new layers of advanced infrastructure, but it’s also designed to be a massive jobs creation effort by both parties. Thus, emphasis on awarding projects to U.S.-based companies will be a priority. It won’t entirely eliminate the best-in-class foreign companies, but only if they agree to hire American citizens as a precondition.

Stocks of structural engineering companies, waste remediation companies, earth moving and heavy lifting equipment companies, steel and pipe companies, aggregates companies, broadband equipment companies, cell tower companies, railroad operators, and renewable energy companies could lead the way.

Without naming a list of potential stock winners, investors can do some rapid research on their own by simply taking the following list of leading ETFs targeting the infrastructure super cycle, going to Yahoo Finance, and noting the top ten holdings of each ETF. (Their management teams are constantly updating their top holdings to reflect both fundamental and technical strength.) From there, one can easily put together a customized list of top stocks, depending on how the DC political balance of power plays out.

Global X U.S. Infrastructure Development ETF (PAVE)
iShares U.S. Infrastructure ETF (IFRA)
Invesco Dynamic Building & Construction ETF (PKB)
iShares Global Infrastructure ETF (IGF)
iShares Global Clean Energy ETF (ICLN)
SPDR S&P Kensho Clean Power ETF (CNRG)
ALPS Clean Energy ETF (ACES)
(I have no position in these ETFs)

Using top-down analysis to formulate a bullish sector base case, and bottoms-up analysis to select the best stocks, is how best to position a portfolio for a post-election investing landscape.

Weekly Sector Performance Table

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

There are many unknowns facing the fossil fuel, banking, and healthcare sectors, but last week being the worst week since March, there was really no place to hide. Market-leading consumer discretionary, industrial, and technology sectors led the sell-off. But what was interesting about last Friday afternoon, going into the weekend against a very negative tape, traders and investors were bidding up shares of Caterpillar Inc. (CAT), United Rentals Inc. (URI), and the rest of the infrastructure stocks across the board.

This rotation was significant – and possibly an early sign of future money flows.

No matter who wins, a rising tide of infrastructure spending looks inevitable, and it’s just this kind of secular investment theme that has the real potential of paying off big. If the market continues to exhibit a high level of volatility in the coming days, there will be ample opportunity to buy the top infrastructure stocks with the strongest revenue and earnings visibility at attractive entry points.

Maybe Christmas will come early in 2020.

Navellier & Associates owns Caterpillar Inc. (CAT), in managed accounts but does not own United Rentals Inc. (URI).    Bryan Perry does not own Caterpillar Inc. (CAT) or United Rentals Inc. (URI) personally.

All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
The U.S. Dollar Is Getting Ready to Move Up

Sector Spotlight by Jason Bodner
Big Money Provides Ballast During Market Storms

View Full Archive
Read Past Issues Here

About The Author

Bryan Perry

Bryan Perry

Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.

Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry

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