Over the last four years, the phrase “infrastructure week” became a joke. Early on in this administration, when scandals of one kind or another appeared or when stories surfaced of infighting within the White House, the President and his team tried to divert attention away from the problem by talking about an upcoming “infrastructure week.”
The joke, of course, was that nothing ever got done.
The fact remains that there is an urgent need in America for spending on infrastructure; the roads and bridges that keep us moving, the electric grid that keeps us powered, the water supply systems, the railways, and a host of other projects that need attention.
When Joe Biden takes over the White House in January, we can expect a similar theme to emerge. The difference is that this time around, some of the work might actually get done.
That isn’t a comment on the effectiveness of Trump versus Biden or Republicans versus Democrats, it’s just based on the observation that the billions of dollars needed for these projects may be easier to find now than they were three or four years ago.
Back then, politicians, particularly Republicans, used to care about government borrowing and debt, or at least pretended to care. Big spending projects used to mean cuts elsewhere, or tax hikes, neither of which were particularly popular even though these infrastructure projects would have significant long-term economic and social benefits.
Of course, now that we have all agreed that deficits don’t matter, and that government spending can be paid for by borrowing another few trillion and/or by the Fed printing money to pay for it, that isn’t a problem, right?
I jest, of course. Debt and deficits are always a problem, but for politicians, they have the big advantage of being likely to be problems for the next guy, not you. Add in the fact that talking big about infrastructure spending gives an incoming administration a chance to sound proactive and dynamic and a plan for big public works projects early next year looks assured.
It may even be needed.
With the resurgence in coronavirus cases prompting a return to restrictions in many states right now, there is an increasing risk of returning to negative GDP growth either this quarter or next, vaccine or no vaccine. If that is the case, opposing infrastructure spending will be much harder for Biden’s opponents, and government investment might actually make sense.
So, how should investors play the return of infrastructure week?
The thing to keep in mind here is that we are talking about government spending, so predicting where the money will go is hard. There is not much point in trying to use quaint, old-fashioned things like "logic" to predict where the projects will be focused or identifying areas of actual need. Again, this is government spending.
So, if you are investing in the coming of infrastructure week, you should look at broad-based, generic investments. The most obvious thing to do there is to buy something like the iShares Infrastructure ETF (IFRA). That would give you some exposure wherever the money went.
One could make a case for some individual stocks such as the civil engineering company Fluor (FLR), crane operator Terex (TEX) or construction equipment rental company United Rentals (URI), but while any or all of those stocks could benefit, I don’t see the sense in trying to pick a winner here when you can spread your bets by buying the ETF.
Another advantage of playing it that way is that you won’t need any real specifics for the ETF to benefit. In fact, you won’t even need anything to actually happen. As we are all too aware now, “infrastructure week” is not about doing anything, it is about talking about doing things. In that generalized environment, infrastructure stocks will all benefit, but the biggest beneficiary when the talking begins is likely to be a generalized investment such as IFRA.
As the year ends, if you are intending to harvest some profits on long-term winners in anticipation of a change in long-term capital gains tax or sell some losers to offset those profits, consider putting some of that cash to work in a fund that will rise with the almost inevitable return of infrastructure week.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Martin Tillier
Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.
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