One of the market's early verdicts on last week's surprise election result is that Donald Trump's presidency will be good for construction and industrial stocks.
A little more than one week since Mr. Trump's upset victory, the U.S. industrials sector is second only to financials in rising by 5 per cent since election day – and 8 per cent since the week prior to the vote.
The positive view on the sector has spread to the Canadian market, where industrials have advanced by more than 2 per cent despite a shoddy earnings season.
The president-elect's campaign included plans to spend $1-trillion (U.S.) on roads, bridges and other public works largely through incentivizing the private sector through tax credits.
"We see this as positive for … Canadian firms with public-private partnership expertise looking to increase presence in the U.S. via acquisitions [or] partnerships," CIBC World Markets analyst Jacob Bout said in a note.
Canadian firms best positioned to benefit include Stantec Inc. and WSP Global Inc., while SNC-Lavalin Group Inc. and Aecon Group Inc. may be poised to build U.S. exposure, Mr. Bout said.
However, as with much of what Mr. Trump has promised in recent months, there is little clarity on what his infrastructure plan might actually look like.
"The U.S. is poised for significant change under Trump but only time will tell if Trump will be able to deliver on his campaign promises – and whether Congress will allow him to," Mr. Bout said.
Mr. Trump's plan for his first 100 days in office includes an American Energy and Infrastructure Act to support infrastructure projects over 10 years.
As a result, the spike in industrials has been among the more dramatic sector rotations since the Trump victory. Since the end of the week prior to the election, 66 out of 69 U.S. industrials in the S&P 500 index are in positive territory. Caterpillar Inc., for example, saw its shares rise 13 per cent over that time.
Some economists have advised caution regarding the extent to which such a fiscal boost would stimulate the broader economy.
"Didn't President Barack Obama unveil an $860-billion 'shovel ready' infrastructure package in 2009?" David Rosenberg, chief economist with Gluskin Sheff + Associates Inc., wrote last week. "Government spending and investment added 0.6 per cent to GDP growth that one year, and nothing thereafter."
Mr. Bout is neutral on most of the Canadian construction, engineering and heavy equipment sector, including Aecon, Stuart Olson Inc., WSP, Stantec and Toromont Industries. Meanwhile, he has the equivalent of a "sell" rating on Finning International Inc., while SNC-Lavalin is his sole "sector outperform" rating in the group.
Nearly all of those companies missed consensus expectations when they reported their third-quarter earnings earlier this month.
"The weaker results in Canada are a reflection of weak oil and gas markets and delayed rollout of infrastructure spending," Mr. Bout wrote. Conditions in Western Canada in particular are expected to remain challenging, he explained.
Canadian companies with U.S. infrastructure exposure fared better. WSP's U.S. segment saw both its revenues and earnings before interest, taxes, depreciation, and amortization rise by about 10 per cent. And Stantec's American infrastructure business saw positive organic growth.
Stantec and WSP also have been the big postelection winners in Canadian industrials, their shares having risen by 18 per cent and 11 per cent, respectively.