The United States went to the polls Tuesday night, and it appears gridlock was the big winner. That's weighing on companies that would benefit from an increase in government spending, including companies tied closely to infrastructure spending.
Shares of construction giant Fluor (NYSE:FLR) and building material suppliers Vulcan Materials (NYSE:VMC) and Martin Marietta Materials (NYSE:MLM) each fell by more than 12% early on Wednesday. The stocks recovered somewhat, but each was off by at least 6% as of 11:30 a.m. EST.
Boosting spending on infrastructure, including replacing aging roads and bridges, has been a popular lawmaker talking point for some time now, but for all the support it seems to have, we still haven't seen a large spending package come out of Washington. With the economy still sputtering due to the pandemic, some had hoped a boost in infrastructure spending would be a top post-election priority as a way to get people working and make sure dollars are flowing.
But the easiest path toward an increase in government spending involves one party controlling both the White House and Congress, and although nothing is certain as of this writing, it appears clear that we will have a split government. One party seems certain to retain the House of Representatives and the other likely to hold the Senate, meaning whoever is president next year will have to work with the opposition.
As a provider of construction and engineering services on big projects, Fluor would be a major beneficiary of an uptick of government funding for infrastructure. The company also does a lot of business with the energy industry, which would make it vulnerable if the next U.S. president is not as open to increases in oil exploration.
Both Vulcan and Martin Marietta are suppliers of the aggregates and other building materials that go into those projects.
Part of the action today is just a reversion to where the stocks were prior to the election hype. Though all three stocks are down for the year, they were all up more than 20% heading into Wednesday. They had been trading on the gradual post-COVID-19 reopenings and the prospects of a so-called blue wave election and one-party control that many on Wall Street had expected coming into Tuesday.
None of the arguments to own these stocks are going to go away as the election results continue to trickle in. The U.S. has an aging infrastructure problem that has to be addressed, along with a growing need for new construction to keep up with demand. Over time, contractors including Fluor and suppliers including Vulcan and Martin Marietta should generate a lot of sales from those trends.
Alas, it might not happen as quickly following the election as some investors had hoped, leaving the stocks vulnerable to a sell-off on Wednesday.