US leads, Europe lags.
The Biden administration's infrastructure packages, particularly the Infrastructure Investment and Jobs Act (IIJA) and related legislative efforts, are set to have significant positive implications for both US and European stock markets.
In the US, these packages aim to catalyze over $1 trillion in private investment and public spending exceeding $750 billion by early 2025. Key sectors benefiting include electronics and semiconductors, electric vehicles and batteries, clean power, clean energy technology manufacturing, and heavy industry. This surge in infrastructure investment is expected to fuel economic growth, create millions of jobs, and support factory construction and utility sectors, boosting returns in industrials, materials, and technology stocks.
The projects' "multiplier effect" is also noteworthy, as infrastructure investment is anticipated to generate greater overall economic gains, indirectly benefiting consumer and financial sectors as well. For US equity markets, these developments provide stability and growth prospects during uncertain economic periods, attracting "smart money" as investors seek both resilience and upside potential amid macroeconomic challenges like tariff uncertainty and higher interest rates.
In European markets, the effects are more indirect but still impactful. US infrastructure-driven demand for semiconductors, clean energy technologies, and industrial goods can benefit European manufacturing and technology exporters who supply or partner in these sectors. Additionally, global market sentiment improves with robust US economic policy, supporting broader equity inflows. Furthermore, Europe faces its own infrastructure challenges, and successful US investment models may inspire or pressure similar policies, potentially boosting European construction, engineering, and technology stocks.
However, the extent to which infrastructure packages from the Biden administration will be funded through tax increases for companies and individuals remains uncertain. Furthermore, much of the positive profit situation in the US is due to the dominance of the US technology sector.
Meanwhile, the US economic recovery is likely to gain further momentum thanks to ongoing vaccinations, fiscal support, and job growth. In contrast, projections for the next 12 months in Europe are only 1 percent higher than before the crisis. The tech sector in China is expected to recover due to its strategic importance to Beijing, but increased scrutiny by Beijing of tech companies in China has further exacerbated the underperformance of the market.
The race between virus variants and vaccines continues, according to Daniel Morris, senior market strategist at BNP Paribas Asset Management. Investors should keep an eye on the risk of a vaccine-resistant Covid variant that could lead to renewed lockdowns. On a more positive note, Daniel Morris expects cyclically oriented countries like Japan to continue to outperform.
The medium-term growth prospects for the technology sector in China remain very good, and the prices in the emerging markets trended sideways after US yields normalized. However, emerging market stock markets have been weighed down by the significant increase in US yields.
In conclusion, Biden's infrastructure packages act as a catalyst for sustained industrial growth and technological modernization, which support upward momentum in US stock markets broadly, while offering complementary export and investment opportunities that European markets can leverage.
Other sectors in the US, apart from the key ones mentioned, may also see increased investment opportunities due to the Biden administration's infrastructure packages. The surge in private investment and public spending could lead to increased returns in the finance sector, as businesses and projects requiring capital seek investors.
Investors looking for diversified growth opportunities beyond the US and Europe might consider exploring the stock-market performance of countries whose economies are recovering well or have strong potential for technological advancements, such as China and Japan.
