Infrastructure to the rescue

Stimulus came from another direction in the form of an infrastructure deal which propelled some of the major indices to record highs.

Article updated: 25 June 2021 8:00am Author: Richard Hunter

The $1.2 trillion infrastructure deal approved by the President will provide a boost to roads, bridges, broadband, passenger and freight services. Quite apart from the further injection into revitalising the economy, the amount is less than the $3 trillion which had been sought by the President, thus having lower tax implications than had been thought to pay for it.

Meanwhile, some signs of inflation are emerging in the housing market as some raw materials are temporarily in short supply. The spectre of inflation is a constant theme, although on the whole comments over the week from the Federal Reserve have reiterated their stance on maintaining accommodative policy for now.

The generally positive news is currently lifting all boats, with the Dow Jones ahead by 11.7% in the year to date. Meanwhile, the S&P500 is up by 13.6% and the Nasdaq by 11.5%, with both of these indices hitting record closing highs.

News of the infrastructure plan also spilled over to the oil price in anticipation of further energy demand. With constrained supply and increasing demand to come from the US driving season and incrementally higher travel over the following months, the price has added 46% so far this year.

In the UK, inflation also remains a topic of some debate. The Monetary Policy Committee recognised stronger than expected growth and above-target inflation in leaving the interest rate and bond buying policy unchanged.

The MPC also believes that the current inflationary effects are transitory and, with an uneven recovery across the UK at present until the full easing of lockdown is reached, it is clearly adopting a wait and see approach.

The news dented sterling but was positively received by the equity market. The major indices continue to attract investor attention from home and abroad, with the FTSE100 currently ahead by 10.3% and the more domestically focused FTSE250 by 10% in the year to date. If these generally positive economic conditions persist as the UK swings into full recovery mode, there could be further buying from institutional international investors since the market is still seen as undervalued compared to some of its global counterparts.

More from Richard Hunter: read more articles directly on the interactive investor website.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.

Richard Hunter

Head of Markets, interactive investor

Richard has over 30 years of stockmarket experience and is one of the UK’s foremost commentators on market matters and a regular contributor for the BBC (BBC News Channel, Wake Up to Money and the Today Programme), CNBC and Bloomberg. Richard’s expert commentary also appears across the national and specialist press. He previously held senior positions at Hargreaves Lansdown and NatWest Stockbrokers.

See what else we have to say