A rise in stocks can trigger a shift in the risk environment. The one day move pushed the US dollar down against most of the major currencies and contributed to a rise in commodity and stock prices. This move was exacerbated by President Barack Obama’s recently announced plans for infrastructure spending in the near term. The increase in spending could be profitable for stock traders — if you know where to look.
[VIDEO] How Investors Profit From Infrastructure Spending
The news over the weekend is the likely cause of the shift in assets. As U.S. president-elect, Barack Obama announced ambitious plans to increase government spending on infrastructure projects. The news buoyed investor sentiment and sent stocks rallying and bonds down.
Large infrastructure spending is one of the slowest ways to get money into the hands of consumers when compared to just sending them checks; but is not an unexpected move. The Japanese did the same thing during a similar crisis in the 90’s.
We can’t always expect the government to streamline (or repeat) this whole stimulus thing by sending us checks month after month, we need to plan ways to profit from the spending in other ways. Big infrastructure spending will increase demand for basic materials and commodities and that seems to be the way investors are trading today.
Investing in single basic materials firms like Alcoa (AA) or Nucor (NUE) may be tempting but these are very risky bets and it may be best to stay diversified across a broad spectrum of stocks within the industry. Efficient diversification can be accomplished through basic materials ETFs like GSG or UYM. These help spread the risk out across several stocks while preserving the intent of the investment.
We walk through some examples in the video above.
Image courtesy Ming1967.