Michael Zezas: The Infrastructure Supercycle is Here

The bipartisan infrastructure bill has passed, and while investors will see some short term impacts, the bigger question is how long will it take for markets to see a return on these investments?

----- Transcript -----

Welcome to Thoughts on the Market. I'm Michael Zezas, Head of Public Policy Research and Municipal Strategy for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the intersection between U.S. public policy and financial markets. It's Wednesday, November 10th at 11 a.m. in New York.

While Congress continues to negotiate the 'Build Back Better' plan, the package of expanded social programs paid for by fresh taxes on companies and wealthier households, it managed to get a key companion piece of legislation over the finish line last week: the bipartisan infrastructure framework. Many investors may have overlooked this event given the framework's smaller relative price tag and lack of tangible tax increases. But don't be fooled. This is a watershed event, and investors should pay attention.

In short, the infrastructure framework adds about $550 billion to the existing budget baseline for infrastructure spending in the U.S. That's a nearly doubling of spending over the next 10 years on infrastructure. And that means fresh market and economic impacts to consider.

For the broader economy, the story is nuanced. Increased infrastructure spending is generally a good return on investment. However, that impact usually isn't visible right away. In the short term, the money put into the economy to build a new road or train line is funded by money taken out of the economy by taxes. A few years out, that new road leads to more economic activity than there was before. But that might not be tangible enough to move markets in the near term.

Something more tangible is the obvious impact to the industries directly involved in infrastructure construction. For example, my colleague Nik Lippman sees material upside to cement companies, who will see major improvements in demand for their product.

Bottom line, the infrastructure supercycle is here. We'll track it and all the market impacts for you as they take shape.

Thanks for listening. If you enjoy the show, please share Thoughts on the Market with a friend or colleague, or leave us a review on Apple Podcasts. It helps more people find the show.