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By Manuela Badawy
September 9, 2011 3:28 PM EDT
* THE ISSUE: President Barack Obama called on Congress late Thursday to pass a $447 billion package of spending initiatives and tax cuts to boost economic growth and generate jobs. Here are several investment ideas based on his proposals.
NEW YORK - Obama's American Jobs Act, which he announced to a rare joint session of Congress late Thursday, includes proposals for a $175 billion one-year extension and expansion of the employee payroll tax holiday that would halve the tax rate to 3.1 percent in 2012 as well as a $65 billion tax break to encourage small businesses to hire more workers. The Act also features $50 billion in spending to upgrade highways, transit, rail and aviation infrastructure.
Wall Street stocks tumbled on Friday as the surprise resignation of a European Central Bank executive board member and skepticism over President Obama's economic stimulus spending plans weighed on sentiment.
The Dow Jones industrial average dropped 233.93 points, or 2.07 percent, to 11,061.88. The Standard & Poor's 500 Index dropped 22.55 points, or 1.90 percent, to 1,163.35, while the Nasdaq Composite Index dropped 36.24 points, or 1.43 percent, to 2,492.90.
SMALL BUSINESS PAYROLL TAX CUTS
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Consumer discretionary stocks could be helped by the announced moves to help small business. The Obama push is expected to help families with combined incomes of $80,000, said Bernie Williams, vice president of discretionary money management for USAA.
Dollar Tree stores could gain if this stimulates hiring at this income level, added Brian Lazorishak, a portfolio manager at Chase Investment Counsel with $1 billion in assets under management. McDonald's and Starbucks Corp. and other restaurants could benefit as well, Lazorishak said.
Small business service providers like Intuit, the maker of TurboTax and Quicken accounting software, and those related to staffing that are directly tied to employment are likely to get a boost.
"This financial crisis was a consumer-led recession, so anything that you can do to prop up the consumer and spending is good," said Williams of USAA. The tax cut is a direct injection to consumers' pockets.
"That money will get spent. It will get spent more in necessities, like the Targets of the world, staples companies," said Williams, who has direct management of $4 billion from high net worth individuals. "They will have that stimulus this year and next year if that gets passed."
INFRASTRUCTURE INVESTMENTS
Obama's spending allotment included a healthy dose of funding for public infrastructure, an area of focus in the 2009 'stimulus bill,' and a traditional area of focus for the current administration, J.P. Morgan noted in a report Friday.
The firm said beneficiaries could include aggregate-focused companies Marietta, Vulcan Materials and Eagle Materials and infrastructure-focused firms such as URS Corp., Jacobs Engineer and Fluor Corp.
Keith Wirtz, chief investment officer at Fifth Third Asset Management, with $18 billion in assets, added that capital investment in infrastructure has him bullish on shares of Caterpillar Inc., Fastenal Co. and Cummins Inc..
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