As investors wait to see if Donald Trump's pro-growth campaign promises become policy, patience is wearing a little thinner in one area of the U.S. equity market.
Building and engineering stocks that initially soared on Mr. Trump's pledge to rebuild U.S. infrastructure have headed back down to Earth, declining in each of the last three weeks. The foundation is weakening on companies like Jacobs Engineering Group Inc., Eagle Materials Inc. and Headwaters Inc., which rose more than 20 per cent in November alone, and now find themselves flagging.
"It's a realization all the new administration's proposals will take time to filter through the system and that's not going to happen overnight,'' Bruce Bittles, chief investment strategist at Milwaukee-based Robert W. Baird, said by phone. "Listen, we've been sitting in a slow growth mode now for 10 years. If we can bust out of that, that would be a game changer for a lot of industries including construction materials sector.''
A Bloomberg index of infrastructure stocks added 1.6 per cent at 2:10 p.m. in New York.
While infrastructure stocks may have weakened, another so-called Trump trade in financial stocks is still going strong. An index of banks and insurers in the S&P 500 that soared 18 per cent in the month following the election has kept going up as investors continue to anticipate looser industry regulations. The gauge climbed almost 3 per cent last week to close at the highest in more than nine years.
And even the vaguest signal that Mr. Trump is ready to redirect attention to infrastructure spending plans rekindles interest in the group. It happened on Feb. 9, when the president said he'd unveil a "phenomenal" tax plan within weeks, erasing a 2.5-per-cent intraday loss in the group, which finished 0.5 per cent higher.
Recent weakness among building stocks tracks a handful of other market barometers from Treasury yields to inflation breakevens that also show a cooling in the exuberance that greeted Mr. Trump's election.
A reassessment was practically inevitable in stocks that rose as fast as these. According to research from Bank of America, companies viewed as beneficiaries of expanded government largess saw their valuations expand twice as much as those seen benefiting from tax cuts in the month after Trump was elected while enjoying no such improvement in Wall Street earnings expectations.
As of now, all Mr. Trump has done is name two Manhattan real estate developers, Richard LeFrak and Steven Roth, to lead a council of builders and engineers that will oversee his $1-trillion infrastructure program. Mr. LeFrak has already said that given the political struggle ahead, a $550-billion program might be more reasonable than a $1-trillion one.
The president is also expected to face resistance from Republican fiscal hawks in Congress, as well as House Speaker Paul Ryan, who said he won't support spending without offsetting budget cuts.
Wall Street also remains unconvinced. Economists from Goldman Sachs Group Inc. said last month that infrastructure spending will only total one-fourth of the $100 billion-per-year campaign proposal. The firm also said this week that Trump's plan would add just 0.4 percentage point to global demand growth for steel and copper. For other metals like zinc or nickel, the additional buying will be "too small" to measure, according to Bloomberg Intelligence.