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U.S. Indices at Record Highs as Infrastructure Bill Passes

Plus500 | Wednesday 11 August 2021

U.S. indices traded at record highs on Tuesday. The $1 trillion infrastructure bill passed by the Senate and a rebound in Oil prices may have been responsible for the rise.

Indices

The U.S. Senate passed the huge infrastructure bill supported by President Joe Biden on the back of broad support across both major parties. The bill will redirect funds toward public works programs, with $110 billion earmarked for roads and bridges, $66 billion for rail systems, and $65 billion for expanding broadband internet networks, among others.

The massive spending on infrastructure approved by the United States government may be increasing investor confidence in several construction-related stocks. Expectations of potential federal building contracts in the wake of the aforementioned bill’s passage by the Senate could exert upward pressure on the share prices of firms such as Caterpillar (CAT), Vulcan Materials (VMC), Eagle Materials (EXP), and Jacobs Engineering (J). Exchange-traded funds such as the Industrial Select Sector SPDR (XLI), which tracks industrial sector stocks on the S&P 500 (USA 500), could also be driven upwards by infrastructure spending.

On Tuesday, Caterpillar stock rose by nearly 2.5%, while the construction materials producer Vulcan Materials’ share price increased by 2.2%. Eagle Materials rose by over 3% on Tuesday after more than a month of consistent intraday trading losses. Jacobs Engineering, a technical services company specialising in infrastructure projects which could stand to benefit from the Senate bill, gained 1% in stock value on Tuesday. The Industrial Select Sector SPDR rose by 1% as well.

On Tuesday, the S&P 500 rose by a slight 0.1%, while the Dow Jones Industrial Average increased by 0.4%. Despite these modest increases, both the S&P 500 and the Dow Jones (USA 30 - Wall Street) closed at record highs yesterday. The rise in the values of these indices may have been due, in part, to the stock rise in the industrial and construction sectors.

Oil Prices Rebound and Energy Stocks Gain

A further possible factor behind the S&P 500 and the Dow Jones trading at record highs may be the recent recovery in the price of Oil. After dropping on Monday, Crude (CL) and Brent (EB) Oil both rose on Tuesday. Brent Oil fell by 0.5% on Monday before recovering by 2.4% the following day, while Crude Oil dropped nearly 1.5% on Monday before rising 2.5% on Tuesday. This quick recovery may be due to last week’s revelation that U.S. Oil stockpiles had fallen by hundreds of thousands of barrels. 

Energy stocks may have also contributed to the stock market’s rise as Oil demand recovers. Chevron’s (CVX) share value increased by over 1.8% on Tuesday, while ExxonMobil (XOM) rose by 1.7%. Given that the new Senate bill also provides for significant investment in clean energy sources, it may not be surprising that fuel-cell companies’ stocks have surged as well. New York-based Plug Power (PLUG) rose by over 3% on Tuesday, while FuelCell Energy (FCEL) jumped by nearly 4.3% in share price.

Although some major American indices were trading at record highs on Tuesdays, it remains to be seen if the rally fueled by the infrastructure and energy sectors will continue.


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