Where's the Rally for Stimulus-Related Stocks?

Stocks are bouncing around today despite news the Obama Administration is considering an absolutely huge stimulus package that could be worth some $850 billion.

A bit of context from Bloomberg:

Barack Obama may ask Congress next year to approve a stimulus plan of around $850 billion, an amount that has grown as the U.S. economy sinks deeper into recession, an adviser to the president-elect said.

Obama’s transition team believes the amount, about 6 percent of the U.S.’s $14 trillion economy, is needed to reverse rising unemployment, said the adviser, who spoke on condition of anonymity. The sum would exceed initial estimates by House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, as well as surpassing what some economists and the International Monetary Fund say is required.

Pelosi and Reid were kicking around spending plans worth between $400 billion and $600 billion, and that gave investors a buy sign back in early December. So, if we now expect stimulus to be substantially higher (and still have no concrete evidence of where exactly that money will go other than vague discussion of roads, healthcare, renewable energy, etc.), shouldn't we be seeing more of a rally in stimulus-related stocks?

A few possibilities: First, the market may have already priced in the stimulus bump. Oft-touted infrastructure plays like smart-meter maker Itron (ITRI) are up more than 40 percent in the last month. Heavy engineering and construction firms like Jacobs Engineering (JEC) and Fluor (FLR) are up 62 percent and 48 percent respectively. Second, while the stimulus payout may be growing, the economy is getting worse. Picking stocks based on government spending alone can't be done without considering how the economic woes that caused such massive intervention in the first place will translate to lower profits overall, even for companies who reap the stimulus benefits.

Comments

[herbert hoover:]

If these stocks are already up 40-50 and 60 percent in 3 weeks, haven't you just answered the question you posed in the headline? The real question is when these overbought equities will return to normal.

2008 Dec 18 02:01 PM

[Jim Regan:]

I agree with Herbert,
It's a bit rediculous to ask for a continued rally when stocks are up around 55% in most cases since late-November. Don't get me wrong, I absolutely love the valuations in FWLT, FLR and JEC (among others)... but they should see a leg down over the next month because they jumped WAY too quickly.

2008 Dec 18 02:10 PM

[Chris Santiago:]

the author appears to be a little late to the party considering these stocks have already rallied 35%-50%. most hit their lows the thursday/friday before obama's "big" announcement.

i appear to be late to the party as two people have already posted similar comments...

2008 Dec 18 05:42 PM

[Robert Nabloid:]

Don't give the author crap for the headline - he didn't write the headline. As the author stated, JEC and FLR already had some big bounces from all this stimulus news.

The smartest money is on the sidelines waiting for more details. I could be missing something but I have not yet seen one detailed plan from O. How do we know where he is going to spend our money? What is he going to spend our money on?

Without key knowledge it is only speculation because you could end up buying a company that gets no "stimulus" bonus from Uncle O. Even if Uncle O says he is going to build roads, you don't know what states are going to get the bulk of it, how much will be spent to purchase land, build bridges, or be spent on other items besides infrastructure, etc, etc.. Will the stimulus plan be $850 billion or $3 trillion or $300 billion?

Fact: We don't know squat yet and can only speculate for now.

2008 Dec 18 06:55 PM

[who:]

What can be certain the package will be big and cost Americans for a very long time.

2008 Dec 19 03:11 AM