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Infrastructure is doing ok so far

We gave a series of webinars ahead of the US election in 2020 where John Calverley, our Chief Economist, laid out potential investor implications. The table below summarized our views.

A key action point from our client talks was that in most scenarios of either Trump or Biden winning and various permutations of Congressional outcomes, infrastructure and industrial sectors would be expected to do well over the next few quarters.

So, a quarter and a bit after the election, how are we doing? The first thing to say is that we got lucky. Announcements of successful Covid-19 vaccines started in early November 2020 and blasted pandemic recovery optimism into the stratosphere, taking the US stock market (and others) higher. This optimism held up despite Trump’s delusional attempts to question the voters verdict and his supporters shenanigans in January. The table below shows some key sector returns in the S&P 500 and two proxies for infrastructure and green energy, from the end of October 2020 to last Friday.

Biggest winner? The energy sector, with vaccine news bolstering hopes of demand picking up and lifting key energy companies. The financial services sector has done well since October on vaccine news as well, with the steepening US yield curve lifting profit hopes. The industrial sector ETF did return 32.4% though, and the infrastructure index returned 37%, both higher than the S&P 500 total return of 27.1% during that time period.

While the Democratic party holds both chambers of Congress, the political reality seems to be that Biden will struggle to get many ‘radical’ things done (radical in terms of US political thinking, in any case). This makes the third column with a bit of the fourth column the likely benefactors of political winds for the rest of 2021 and into 2022, especially if Biden gets his $2 trn worth of additional infrastructure spending. Interesting times ahead of course, but hopefully the worst of the pandemic is behind us and investors can focus on recovery hopes.

Gerry Celaya, Chief Strategist


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