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3 Things Investors Need to Know About The $4 Trillion Infrastructure Plan: Part 2

3 Things Investors Need to Know About The $4 Trillion Infrastructure Plan: Part 2

Posted On August 13, 2021 12:04 pm
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In part 1 of this series, we saw how the $4 trillion in infrastructure spending Congress is currently working on could, according to Moody’s, fuel 1% stronger GDP growth through 2031 and help create 19 million jobs.

In part 2 we’ll examine what this potentially stronger economic growth means for corporate earnings and the stock market.

Fact 3: How $4 Trillion In Infrastructure Could Boost Corporate Profits And The Stock Market

“In the long run…each 1% move in U.S. GDP growth should translate into roughly 3% to 4% growth in the earnings of S&P 500 companies.” – Bank of America

According to Bank of America’s economists (also part of the blue-chip consensus), 1% faster GDP growth translates into about 3.5% faster corporate earnings growth over time.

Today the bottom-up consensus long-term EPS growth forecast from FactSet is 8.5% CAGR. Historically, analysts tend to overestimate by 2% to 3%, and adjusting for the historical probability of recession (14%) that would be 6.4%.

(Source: FAST Graphs, FactSet Research)

Including the pandemic and post-pandemic recovery, earnings have grown at 8.5% CAGR for the last four years, and that’s what analysts expect to continue.

If the economy were growing 1% faster, as Moody’s expects if the $4 trillion infrastructure bills pass, then earnings growth could potentially jump to 11.5% to 12.5% CAGR through 2031.

That could have massive implications for your portfolio.

Continue Reading At StockNews.com

About author

Dividend Sensei

I'm an Army veteran and former energy dividend writer for The Motley Fool. I'm a proud co-founder of Wide Moat Research, Dividend Kings, and the Intelligent Dividend Investor. My work can be found on Seeking Alpha, Dividend Kings, iREIT, and the Intelligent Dividend Investor. My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams and enrich their lives. With 24 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and income streams and achieving long-term financial goals.

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