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Wall Street economists are confident Biden’s Build Back Better bill will become law – and boost infrastructure firms

  • December 07, 2021

Despite ongoing haggling on Capitol Hill, investors remain unfazed on the bill’s odds and its upside for U.S. manufacturers and construction companies. Where some of the Street’s economists differ is on their predictions on Build Back Better’s final price tag.

“The Senate has always been the highest hurdle for the BBB legislation to clear and we expect the legislation to change before it passes in that chamber,” Goldman Sachs chief economist Jan Hatzius wrote on Nov. 22. “Overall, we expect the bill to shrink somewhat from more than $2 trillion in new spending and tax benefits in the House-passed bill to a range of $1.75 to $2 trillion over 10 years.”

J.P. Morgan’s Feroli, who expects a Build Back Better bill in the $1 trillion to $1.5 trillion range, wrote that the impact of the latest measures will be more spread out versus the Covid-19 emergency measures like the CARES Act or the American Rescue Plan.

Consumers are sooner to feel the impact of an expanded child tax credit next year than they will smoother roads or more charging stations for electric cars, he wrote. It could be years before the majority of everyday Americans are driving electric vehicles.

Stock traders, on the other hand, see a different timetable. Those looking to put money to work before major infrastructure projects begin are likely looking to scoop up shares of their favorite materials or industrials stocks now.

“In our view, even a conservative estimate of the ultimate outcome would be a still robust US $2.5 [trillion] between both plans over 10 years,” Michael Zezas, head of U.S. public policy research at Morgan Stanley, wrote on Wednesday.

“While that number might fall short of some progressives’ ambitions, it should get your attention,” he added. Such a mammoth amount of cash would drive an “infrastructure ‘supercycle,'” a powerful, nationwide demand for materials like cement and asphalt – and a rally across the broader construction sector.

Investors already seem to favor certain stocks that stand to benefit from projects to improve the nation’s highway and bridges.

Vulcan is up 33% this year to the SP 500’s 22%, while Nucor has seen its stock more than double in value. PAVE, a fund that offers investors exposure to a wide range of infrastructure stocks, is up 32%.

Jacobs Engineering Group, a construction-services companies that helps governments and private firms design and build, generates about 20% of its annual revenue from U.S. government contracts. It projects often include work for the U.S. Navy or Department of Energy.

Jacobs, which has about 52,000 employees, also works with state governments on the types of projects that Build Back Better advocates say are critical to reducing U.S. carbon emissions and are likely to feature in the final legislation.

It did so in Texas, where it served as project manager for the new TEXRail line, which opened in 2019. The new commuter rail transverses 27 miles of Texas land over nine stop and three cities, including Fort Worth, North Richland Hills and Grapevine to Dallas-Fort Worth International Airport.

Jacobs equity is up 46% this year. 

— CNBC’s Michael Bloom contributed to this report.

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