What's Next For Washington: $2.5 Trillion In Spending, Higher Taxes And More | WHAT REALLY HAPPENED X-Frame-Options: SAMEORIGIN

What's Next For Washington: $2.5 Trillion In Spending, Higher Taxes And More

Full disclosure: This is NOT another tea leaf reading on exactly how and when Congress will manage to raise the debt ceiling, keep the government open, and pass a multitrillion-dollar package of spending offset by tax hikes. To be clear, we continue to think that it will do all of the above. But rather than focus on the palace intrigue, we’ll deal with DC’s policy choices in classic Morgan Stanley Research fashion…by focusing on tangible market impacts.

Let’s start with new government spending, which can be a positive catalyst in equity sectors such as construction and clean tech: Sure, Democrats may be stuck on exactly how much new spending to approve across their bipartisan infrastructure and ‘Build Back Better’ plans. But in our view, a conservative estimate of the ultimate outcome would be a still robust total US$2.5 trillion between both plans over 10 years. While that number might fall far short of some progressives’ ambitions, it should get your attention. For example, the Bipartisan Infrastructure Framework, which would make up about US$500 billion of this total, would nearly double the US’s current baseline infrastructure spend. As we argued earlier this year in a report led by our colleague Nikolaj Lippman, this would catalyze an infrastructure ‘supercycle’ where factors like a surge in cement demand could lead to a positive re-rating of the construction sector. Additionally, we estimate that the infrastructure framework could include ~US$500 billion in new spending and tax credits aimed at clean energy production. That means a substantial ramp in demand for clean tech companies, which our colleague Stephen Byrd sees as a clear bullish catalyst for the sector, particularly names like PLUG, which he upgraded last week, and RUN.