Biden’s climate plan could boost the stock market, analysts say

Biden’s $2 trillion climate spending plan will give a big lift to the S&P 500, Bank of America analysts said.
Biden’s $2 trillion climate spending plan will give a big lift to the S&P 500, Bank of America analysts said.
Image: REUTERS/Jonathan Ernst
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Once the US Congress votes on a pandemic stimulus bill in March, the next item on president Joe Biden’s list of spending priorities is a $2 trillion infrastructure spending bill aimed at supporting an economy-wide transition away from fossil fuels. On Feb. 11, Biden met with congressional leaders in the Oval Office to chat about the bill, which his campaign has called the “largest mobilization of public investment since World War II.”

That plan, though costly, will likely benefit some of the country’s biggest companies, Bank of America analysts wrote in a research note on the same day. Big spending on things like home efficiency retrofits, renewable energy systems, and electric vehicle charging stations will mean bigger profits for companies in the industrial and raw materials sectors of the S&P 500, the country’s biggest companies by market cap. That’s good news for investors, the analysts wrote; they project that the infrastructure bill will boost the country’s GDP 1.9-8.6%, and notes that historically each percentage of GDP growth has translated to a 3-4% bump in overall S&P earnings.

For the Biden administration, the trick will be supporting the right kinds of construction activity. The industrial sector, which includes companies that supply building materials, build highways, produce heavy machinery, and similar activities, is a leading source of carbon emissions within the S&P 500:

So far, companies in the S&P 500 lag behind their international peers on climate action. Fewer than one-quarter of the US companies have set or accomplished climate goals that put them in alignment with the Paris Agreement, compared to 44% in Europe, even though more than half of S&P 500 companies have assets that are at high risk of physical damage from climate change. But increasingly, the market is rewarding companies that clean up: Paris-aligned companies have outperformed the overall S&P 500 by 11 points since the 2015 agreement.