Sean Darby, the bank's chief global equity strategist, wrote his note after the U.S. midterm elections, which ended with Republicans keeping control of the Senate and Democrats gaining a majority in the House. This government setup makes it harder for the government to move significantly forward on a number of issues. However, leaders from both parties have signaled they are willing to work together on infrastructure, opening the door for a bipartisan bill to move forward in Washington.
"This is a logical time to address the many US infrastructure deficiencies that have become an impediment to a variety of economic activities in the US, most notably transportation," Darby, the bank's chief global equity strategist, wrote on Monday. "Public spending on infrastructure (transportation and water) as a share of GDP is near all-time lows (2.3%). Higher infrastructure spending would help US competitiveness and the associated jobs created would also help the economy."
Senate Majority Leader Mitch McConnell said last week he and Democratic House Rep. Nancy Pelosi talked about bipartisan cooperation on infrastructure. On Tuesday, White House economic advisor Larry Kudlow said the Trump administration is looking into a multifaceted infrastructure plan that would improve the U.S. shipping industry and energy pipelines.
The S&P 500 materials sector, which includes Nucor and Vulcan Materials, traded more than 0.6 percent higher following Kudlow's comments. The industrials sector, which is also made up of several infrastructure-related companies, rose 1 percent on Tuesday.
Darby included Nucor and Vulcan in Jefferies' "Shifting Sands" basket, which tracks infrastructure stocks. The basket also includes Reliance Steel, United Rentals and Commercial Metals, among others. These stocks have underperformed the broader market in 2018. All of them except for Nucor are down for the year, while the S&P 500 is up 2.3 percent.