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.