The central bank put is giving way to the 'Keynesian put,' according to Bank of America Merrill Lynch.
With long-term borrowing rates for most developed nations sitting near record lows, and the potentially perverse effects of lowering rates below zero widely on display, a growing chorus of economists have made the case that governments should work harder to support slow-growth economies by spending more money.
Bank of America's clients are begging for more investment from governments and businesses alike — and Chief Investment Strategist Michael Hartnett is confident that there's help on the way from fiscal policy, as events like the U.K. referendum underscore voters' demand for a more populist set of solutions.
"Electorates are increasingly voting for policies to address wage deflation, immigration and inequality," he writes. "The capitalist, monetarist, globalist consensus of recent decades is now under threat and policies that are more socialist, Keynesian, and protectionist are being promised."
Governments' pivot to play a larger role in boosting economic activity will be reflected in financial markets, argues Bank of America's team.
Hartnett previously outlined the case for shifting from financial to real assets (like commodities and real estate) in order to benefit from the switch, but have also seized upon the work of the bank's global equity analysts to highlight 150 stocks from around the world that would be poised to reap gains if government purse strings do indeed loosen en masse.
"As policy shifts from the exclusive and extensive use of monetary policy in recent years to create growth, to a more strategic and balanced mix of fiscal and monetary policy, we believe asset allocators should rebalance portfolios away from the 'QE winners' toward assets and sectors that should benefit from more fiscal largesse such as companies with exposure to Main Street, infrastructure, defense, and real assets," he writes. "Infrastructure and construction companies dominate, comprising 61 percent of the list; 15 percent of the likely beneficiaries are in technology, networking, and cybersecurity. Energy, defense, and healthcare companies represent 12 percent of the other fiscal beneficiaries."
Ahead of the U.S. election, both Hillary Clinton and Donald Trump have pledged to step up infrastructure spending if elected president.
To this end, Bank of America's list includes 35 firms listed in the U.S. that span a dozen industries. These companies have exposure to public construction projects, traditional government spending priorities like defense, and 21st-century infrastructure options like Barack Obama's "broadband stimulus fund" or renewable energy tax credits.
The companies are:
- Vulcan Materials Co.
- Martin Marietta Materials Inc.
- Ball Corp.
- Armstrong World Industries Inc.
- Owens Corning
- Blueknight Energy Partners LP
- NextEra Energy
- Thermo Fisher Scientific Inc.
- Illumina Inc.
- Lockheed Martin Corp.
- Raytheon Co.
- Northrop Grumman Corp.
- General Dynamics Corp.
- Boeing Co.
- L-3 Communications Holdings Inc.
- Union Pacific Corp.
- CSX Corporation
- Kansas City Southern
- Delphi Automotive PLC
- General Motors
- Ford Motor Co.
- HD Supply Holdings Inc.
- Terex Corp.
- Caterpillar Inc.
- United Rentals Inc.
- AT&T Inc.
- Verizon Communications
- Frontier Communications Corp.
- Windstream Holdings Inc.
- Texas Instruments Inc.
- Analog Devices Inc.
- NXP Semiconductors NV
- Maxim Integrated Products Inc.
- Autodesk Inc.