Stocks jumped to new highs at the close of Tuesday’s session thanks to the $1 trillion infrastructure bill passing the Senate on a bipartisan basis (the bill now needs to be passed in the House). The Democratic majority in the House should make it easier to pass compared to the 50/50 Senate.
Inside Infrastructure Plan
Senate’s approval for infrastructure bill of $550 billion in addition to the previously approved funds of $450 billion for five years is a tailwind for the index. The 2,702-page legislation is aimed at establishing the United States with the world's best economic infrastructure. Total spending may go up to $1.2 trillion if the plan is extended to eight years.
The infrastructure bill will provide $100 billion toward roads, bridges and other major projects. The plan allocates $39 billion to modernize public transit and improve access for disabled people. In addition, the bill has proposed $66 billion for passenger and freight rail, $15 billion for electric vehicles and buses, and $17 billion for airports, ports and waterways.
The plan will invest $50 billion and $55 billion in water infrastructure and clean water projects, respectively. Moreover, $65 billion will be invested in high-speed Internet (broadband), $21 billion in environmental clean-up and $73 billion in Power infrastructure. Since the Dow Jones has exposure to industrial sector, such a bill is helpful for the index (read:
ETFs To Play U.S. Infrastructure Overhaul). Sector ETFs to Benefit
Against this backdrop, below we highlight a few sector ETFs that could gain ahead on the basis of the passage of the infrastructure bill.
Since the bill is based on the U.S. infrastructure overhaul, the sector should boom undoubtedly.
iShares U.S. Infrastructure ETF ( IFRA Quick Quote IFRA - Free Report) , ProShares DJ Brookfield Global Infrastructure ETF ( TOLZ Quick Quote TOLZ - Free Report) and Global X U.S. Infrastructure Development ETF (PAVE) have been among the top picks here. Industrials
The Zacks Rank #1 (Strong Buy)
Industrial Select Sector SPDR ETF ( XLI Quick Quote XLI - Free Report) will likely gain ahead as the infrastructure bill will boost industrial activities in the country. Along with large-cap construction companies, small-caps should benefit also. Specializing in asphalt and highway construction, Walton’s company, like many other small businesses, is well-positioned to cash in on federal projects, if we go by a CNBC article. Invesco S&P SmallCap Industrials ETF ( PSCI Quick Quote PSCI - Free Report) should thus be a beneficiary of the bill (read: Time for 5 Small-Cap Sector ETFs on Earnings Strength?). Materials
Infrastructure and industrial activities will definitely require materials and thus the sector will emerge as yet another beneficiary. Plus, higher pent-up demand and an improving labor market should boost the inflationary pressure and increase the price of materials.
Materials Select Sector SPDR ETF ( XLB Quick Quote XLB - Free Report) should thus be closely-watched for gains (read: Stocks at Record: Buy 5 Top Cheap ETFs With High Potential). Energy
Demand for oil should be higher if the economic and industrial activities perk up. Moreover, earnings of some energy bellwethers have come in upbeat this reporting season. So, one can have faith in Zacks Rank #2 (Buy)
Energy Select Sector SPDR ETF ( XLE Quick Quote XLE - Free Report) (read: Energy ETFs to Gain on Upbeat Exxon, Chevron Q2 Earnings).