We now have details of what Biden’s stimulus package will look like…
It’s a mixed bag of programs with one aim in mind – making sure the Democrats hold the House in the 2022 mid-term election.
The strategy is clear… They want to buy themselves into the good graces of voters. It might even work.
But $2.25 trillion is a lot of money. That much money will likely inflate asset prices.
One question looms large…
How are they going to make that money back?
Well, one way of paying for the stimulus package is by raising corporate taxes. That’d help to appease progressives who worry about inequality. After all, many are unhappy that companies have prospered while the population has suffered.
This new stimulus package is aiming for the best of both worlds – making voters happy and improving the economy.
The sector most likely to benefit is renewable energy. Governments all over the world are supporting carbon-free initiatives. That makes it a global trend.
Promising to promote renewable energy and related infrastructure appeals to the Democratic base. The commitment to clean drinking water is particularly relevant to Michigan (after what happened in Flint). The absence of a carbon tax appeals to shale oil and gas states like Pennsylvania and Oklahoma. And, the absence of a wealth tax appeals to Democrat strongholds on the coasts.
And with the latest hit of stimulus, we’re already starting to see share prices rise… The Nasdaq bounced, along with the Renaissance IPO ETF (IPO) on Wednesday. Electric vehicle (EV) and related stocks led it higher. Tesla also bounced this week for the same reason.
Another boost of liquidity is great news for not-yet-profitable companies. The high-growth sector of the market needs ready access to funds. With bond yields rising, they need a new source of cheap money… Government stimulus fits the bill.
Growing companies like ChargePoint Holdings (CHPT) and Blink Charging (BLNK) are totally dependent on fresh rounds of extra capital. They’re both attempting to build infrastructure for charging electric vehicles.
Right now, it’s a lot more convenient to charge a vehicle at home than to sit at a charging station. That’s why I’ve often thought of electric vehicles as a homeowner’s car. But this dilemma has caused a significant gap in the market… And since existing utilities aren’t eager to invest in recharging infrastructure, someone else has to.
That investment will be quite costly. Electric vehicles need lots of charging facilities. Eventually, they’ll be as common as parking meters. That’s the only way a full fleet of EVs can compete with the internal combustion engine. It’s a big growth opportunity. That’s why they want more capital.
Currently, there’s only a small number of electric vehicles on the road. They’re simply too expensive to be to compelling. If the current companies can survive until the major manufacturers are solely producing EVs, they’ll have a chance to prosper.
But for now, smaller companies will need to continually borrow more money until EVs are widespread. That’s because there won’t be a reliable income stream until there’s millions of them on the road. That’ll take at least another few years.
So, if you’re looking for a good time to invest in EVs, take a look at the Global X Autonomous & Electric Vehicles ETF (DRIV). Increased liquidity always boosts growth stocks. That’s why EVs were among the first to bounce when this round of stimulus was announced.
All the best,
Co-Editor, Market Minute