About That Big Bipartisan Infrastructure Breakthrough ...

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After weeks and weeks of anticipation and haggling, centrist senators reached a bipartisan deal Thursday on an allegedly huge infrastructure plan that President Joe Biden backed later in the day. This is somewhat of a step in crafting legislation, but whether it is a major step forward—and not simply sideways—remains to be seen. Regardless—as past big infrastructure pushes showed—if this one is eventually enacted or not, we don’t think it will be make or break for the economy or markets.

Some headlines tout the roughly $1 trillion infrastructure package (which could rise to $1.2 trillion if it extends over eight years). But only $579 billion of the bipartisan bill would be new spending—less than a third of the Biden administration’s initial proposal. To get the ball rolling, the five Democratic and five Republican senators behind the plan agreed only to “physical” infrastructure—like roads and bridges—nixing large parts of Biden’s original vision (e.g., home healthcare and climate change measures).

Hence, in broad outlines, it is fairly middle of the road as infrastructure goes: There is $312 billion for roads, bridges, rail and public transportation (with only $15 billion of that going to electric-vehicle infrastructure and transit). The rest, $266 billion, would go to other infrastructure projects like power, water and broadband. As with Biden’s first infrastructure proposal though, this plan would disperse funds over eight years.

So, faced with a watered down plan spread out over the rest of the decade, markets’ reaction appeared appropriate to us: nonchalant. Don’t read too much into daily moves, but the 10-year Treasury yield ticked down to 1.49% from 1.50% yesterday, while Industrials stocks—presumably beneficiaries of the heavy industrial spending—rose 0.8%, barely exceeding the broad market’s 0.6% gain.^[i] Nothing to write home about.

In part, that may be because wrangling the 60 senators needed for bipartisan passage may prove challenging, even with Biden on board. There are currently 21 senators—10 Democrats and 11 Republicans—who say they support the bill. Doing the math, if the rest of the Senate Democrats go for it, it would pass and go to the House, but there are a lot of moving parts. For one, the bipartisan group has agreed only on spending. How to fund it is an open question. Also, more progressive Democrats who didn’t get what they want in this narrower deal say it won’t get their vote unless paired with a much larger partisan “human” infrastructure package they would like to pass through budget reconciliation. We aren’t sure how this will go, but if the bipartisan infrastructure bill’s fate is tied to a still-fuzzy multi-trillion dollar partisan one, we wouldn’t recommend holding your breath for it to pass soon.

Regardless of how this plays out, though, we doubt the market implications are huge. Surprises typically move markets most. But these months-long negotiations will continue to take place in the public eye, allowing markets to discount their implications along the way, likely leaving little shock power—positive or negative. They have been pricing in such measures and weighing their likelihood all through last year’s campaign season, after election results solidified and as legislators began shaping their preferred policies.

Furthermore, stimulus like this rarely has the impact many presume. Staged out over years as in this plan, it just moves too slowly to sway growth or stocks much. Even the spending scheduled to occur near term doesn’t rush into markets, because no project is ever really “shovel ready.” Major ones take multiple levels of permitting and approval just to get started. Then too, with such long lead times, the funding could be re-appropriated later for other stuff—which may well be how this bill winds up getting funded in the first place.

Hat tip: Research Analyst Luke Puetz