Investors should stick with 4 kinds of stocks as Biden’s infrastructure plan pumps up to $4 trillion into the economy, Bank of America says

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  • Bank of America estimates Biden’s infrastructure plan could pump up to $4 trillion into the economy.
  • Investors should focus on stocks that will benefit from an explosion of capex.
  • Cyclical stocks, value stocks, and small-and-mid cap stocks will also perform well as the fiscal stimulus accelerates the economic recovery.
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The next fiscal package out of Washington could total $3 trillion-$4 trillion and focus heavily on infrastructure, climate change, education and inequality, and investors should position their portfolios accordingly, says Bank of America.

A team of strategists led by Savita Subramanian said that investors stick with cyclical stocks, value stocks, small-and-mid-cap stocks, and stocks that will benefit from the explosion of capital expenditures that come out of the stimulus bill.

Industrials and metals are two sectors poised to be clear beneficiaries of the bill that will increase “picks & shovels” capex, BofA said.

The infrastructure plan will also be heavily focused on investments in greener public transit, EV charging stations, and energy efficient buildings. Bank of America sees industrials and materials as two sectors poised to gain from green spending. The firm also warned that commodities-driven companies may face headwinds unless they aggressively move towards greener goals.

The stimulus could boost US GDP up to 7% in 2021, and BofA likes GDP-sensitive cyclical stocks, small-caps and value stocks against the backdrop of a strong economic recovery.

However, more fiscal spending will likely lead to higher inflation as well, and energy and materials have historically been winners in periods of rising inflation, according to BofA data.

Read the original article on Business Insider

2 sectors will be ‘clear winners’ in the event of a sell-off following Biden’s $1.9 trillion stimulus plan, BofA says

Traders work during the closing bell at the New York Stock Exchange (NYSE) on March 18, 2020 at Wall Street in New York City

The stock market has largely priced in Washington’s $1.9 trillion stimulus plan already and investors should anticipate a “sell the news event” once the bill is passed, according to Bank of America.

A group of strategists led by Savita Subramanian said in a note Friday that cyclical stocks and small caps will be “clear winners” in the event of a stimulus-induced sell-off. 

Cyclical and small caps are highly GDP-sensitive and still trade at a steep discount, said BofA. In comparison, large-cap consumer discretionary and information technology stocks are priced to the downside.

Most of BofA’s indicators suggest that stocks are currently pricing in a lot of good news. For example, the ratio of the S&P 500 market capitalization and the M2 money supply is at its highest point since Feb 2020, and well above the post-financial crisis average as optimistic investors pile their cash into stocks.

According to the strategists, the ratio currently indicates that over $3 trillion in stimulus may already be priced in.

Bank of America also warned that stocks are currently pricing in a 1.4% yield on the 10-yr treasury. If that rate is to move up to 1.75% by the end of 2021, the long-standing “TINA” mantra that proposes “there is no alternative to equities” may be at risk.

Read the original article on Business Insider