Some market observers believe riskier assets aren’t adequately reflecting the shortening odds of former Vice President Joe Biden defeating President Trump in November. Others assert a Biden victory won’t be as bad for stocks as investors may currently believe.
Among the investment themes that could benefit from a Biden presidency is infrastructure and that could spell opportunity with the Global X U.S. Infrastructure Development ETF (PAVE).
PAVE tries to reflect the performance of the Indxx U.S. Infrastructure Development Index, which is comprised of companies focused on domestic infrastructure development, including those involved in construction and engineering; production of infrastructure raw materials, composites, and products; industrial transportation; and producers/distributors of heavy construction equipment.
“Given the current economic weakness, business recovery and job growth are likely to be prioritized over policies that could dampen economic growth and perhaps even jeopardize the desired 2022 midterm election outcome. As such, the degree of corporate tax reversal may ultimately be lower than currently discussed,” writes JPMorgan Chief U.S. Equity Strategist Dubravko Lakos-Bujas in a recent note. “Other policy proposals including infrastructure spending, softening tariff rhetoric, and higher wages should be net positive for S&P 500 earnings and largely offset the corporate tax headwind.”
How infrastructure dollars are spent is equally as important as knowing those dollars are earmarked for infrastructure in the first place. During the 2016 presidential campaign, Trump promised to spend $1 trillion to shore up America’s sagging infrastructure, but politicians have clearly agreed to exceed that number. That promise is likely to be reiterated on the campaign trail this year.
“Infrastructure spending could accomplish multiple priorities for Biden starting with employment, incentivizing the use of alternative energy and green technologies, and modernizing public transportation, power, and communication system,” notes Lakos-Bujas.
The infrastructure category has also historically offered higher dividend yields than global fixed-income and global equities, along with greater predictability of long-term cash flows. The ETF may be able to capture the growing demands of economic development that are driving more funding into transport, power, and other systems.
One issue to consider is that President Obama’s infrastructure effort, one unveiled while Biden was vice president, largely fell flat. PAVE may not be reflecting that history is the fund is higher by more than 20% over the past 90 days.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.