Source: Financial Network

Author: Industrial Securities

　　Key points of investment

　　Introduction:On the evening of July 29, 2021, the Senate reached a preliminary agreement on Biden’s "big infrastructure" plan (although this time it was a procedural vote, the result of 17 Republicans and 50 Democrats voting in favor showed that the proposal was likely to get enough support at that time). So what is the impact of infrastructure projects on the US economy and US stocks? Referring to the impact of four infrastructure investment plans on economy and market since the 20th century, this paper deduces the impact of Biden’s infrastructure plan from three dimensions: short-term, medium-term and long-term.

　　★Taking history as a mirror, look at the impact of the past four infrastructure investment plans on the market.?

　　-Since the 20th century, the United States has issued four infrastructure investment plans with large scale and great influence on history. After the resumption, we concluded that:Only when the content of the stimulus bill is highly matched with the contemporary industry trends, the infrastructure investment plan is the catalyst for the long-term trend rise of the US stock market and related industries, otherwise the stimulus plan will only get twice the result with half the effort..

　　★Looking for differences-BidenIn-depth analysis of version 6.24 infrastructure plan

　　-Biden’s infrastructure investment has two versions: 973 billion in five years and 1.2 trillion in eight years, among which,High market attentionThe $597 billion is the new expenditure under the five-year dimension.

　　-The investment scale of $973 billion in the first five years accounted for 4.6% of GDP in 2020, and the average annual investment scale accounted for the highest proportion of GDP in 80 years. Compared with China, the proportion of infrastructure investment in GDP in the United States in the next five years will be 1.7%, which is still significantly lower than that in China in the past five years (19.5%).

　　-The bipartisan discussion group has provided 13 financing methods for infrastructure investment. Ideally, it is expected to raise 584 billion US dollars, but there is great uncertainty about the source of funds accounting for more than half.

　　-In terms of new expenditure, compared with the American Employment Plan published earlier, the 624 version only contains investment in infrastructure, indicating that the two parties have not reached a consensus on revitalizing manufacturing, social care and human resources investment; In the transportation field with the largest investment share, the traditional infrastructure such as roads and bridges has changed little, and the investment quota for new energy has been greatly reduced by more than 90%.

　　-deducing the influence of Biden’s infrastructure plan according to historical laws;

　　（1）Short-term, infrastructure investment plan, with a high annual investment scale, helps to maintain the momentum or expectation of economic recovery. There is no systematic risk in the fundamentals of the United States, but it is difficult for the discounted infrastructure investment plan to continue to drive the US stock market in the second half of the year.Because in the past few quarters, US stocks have fully responded to the infrastructure investment plan. From October 2020 to May 2021, cyclical stocks clearly outperformed technology growth stocks. Inflation expectations and long-term yields of US bonds experienced a staged surge in the first half of the year, and then fell back.

　　（2）In the medium term, the US infrastructure investment plan is expected to bring structural opportunities for related industrial chains around the world. However, it is difficult to replicate the "cyclical industry boom" in China’s golden age of infrastructure, and it may not be an opportunity for cyclical stocks in the United States.First of all, after decades of globalization, the economic structure and social structure of the United States are faced with large-scale infrastructure projects, and it is difficult to give full play to the high efficiency of China as a strong infrastructure country in the whole industrial chain. Secondly, the effect of traditional infrastructure is constrained by the "sequela" of the unprecedented "big water release" in the past two years in the United States, especially the deep-seated structural problems such as intensified political game between the two parties, insufficient labor participation, widening gap between the rich and the poor, and ethnic conflicts.

　　（3）Long-term, traditional infrastructure investment does not conform to the long-term industrial trend driven by scientific and technological innovation in the United States, BidenThe 624 version of the infrastructure plan is difficult to promote the long-term prosperity of the American economy.Follow-up attention to the "infrastructure plan" in the broader sense of the United States, especially around scientific and technological innovation, advanced manufacturing, new energy and other inputs.

　　★Scientific and technological innovation is the future of the United States, but also the future of US stocks.

　　——From one’s own point of viewScientific and technological innovation is the core driving force for the future economic development of the United States, and the total factor growth rate will contribute to more than half of the economic output growth in the next decade.

　　——From the perspective of big country gameBecause the competitive advantage of the United States lies in cutting-edge technology with deep roots and broad dimensions, maintaining its dominant position in the high-tech field is the key to competing with China.

　　——Historical experience shows that industrial trend is the key to determine the rotation of industry and style. Looking back, we need to look for the leading industries (technology and growth) in the future American economic development, because this is the direction in which we can obtain stable excess returns.(Since June, the relative value of growth and the relative cycle of science and technology have regained obvious excess returns. )

　　Risk warning: Sino-US friction escalated, the policy fell short of expectations, and the yield of US bonds rose above expectations..

　　catalogue

　　Report text

　　1. What is the impact of the past four infrastructure investment plans on the market?

　　Since the 20th century, the United States has issued four infrastructure investment plans with large scale and great influence on history.They are Roosevelt’s "3R New Deal", Eisenhower’s Federal Aid Highway Act, Clinton’s Information Superhighway Plan (NII Plan) and President Obama’s American Recovery and Reinvestment Act of 2009 (ARRA Act).

　　Taking history as a mirror, we first review the macroeconomic environment, changes in interest rates of US bonds, market trends of US stocks, styles and industry performances of the past four infrastructure investment plans, and sum up the commonness and characteristics of previous infrastructure investment plans.

　　1.1. Roosevelt and New Deal

• 　　Roosevelt’s New Deal helped the American economy shake off the gloom of the Great Depression.

　　In order to eliminate the economic crisis caused by the Great Depression, Roosevelt immediately implemented the "Roosevelt New Deal" for five years after taking office.Faced with the average GDP growth rate of-14% during the Great Depression (1930-1933), Roosevelt promulgated the "3R New Deal", including Reform, Recovery and Relief. Among them, Recovery is mainly a temporary policy measure based on building infrastructure to stimulate economic recovery. Specifically, on the one hand, in 1933, Roosevelt established the Public Works Administration (PWA), which organized and provided funds to build public works. By 1939, the department had funded over 3,400 projects, including sewage treatment plants, airports, dams and other buildings. On the other hand, in 1935, the government established the works progress administration (WPA), which employed over 8.5 million employees and built over 1 million kilometers of roads and 13,000 public buildings.

　　The total fiscal stimulus in Roosevelt’s New Deal was about $41.7 billion, accounting for 73% of the US GDP in 1933. Infrastructure-related expenditure was $17.4 billion, accounting for 30.4%, the largest in history.However, considering that the economy in 1933 was still in recession, the base was low. If we take the average GDP from 1933 to 1938 as a reference, the proportion of all support and infrastructure investment during Roosevelt’s New Deal was 54% and 22.5%. In infrastructure investment, the public works administration spent about 6 billion dollars, accounting for 10.5% of the GDP of the United States in 1933 and 9% of the average GDP during the New Deal. The expenditure of WPA (works progress administration) project is about US$ 11.4 billion, accounting for 20% of GDP in 1933 and 14.8% of the average GDP during the New Deal.

　　In order to make up for the huge financial expenditure and expanded debt during the New Deal, Roosevelt raised funds by reducing government expenditure and increasing income tax on individuals and alcohol enterprises.By 1938, the public debt of the United States had increased by 85% from 2 billion to 37 billion dollars, and its proportion in GDP had moved up from 20% to about 40.5%. In order to fill the gap between revenue and expenditure opened by the stimulus plan, Roosevelt emphasized "cutting expenditure". In 1933, Congress passed the Economy Act to cut 15% of government employees, military salaries and veterans’ benefits, which provided about 500 million funds for the New Deal. In addition, the government also increased taxes to raise funds. For example, Roosevelt asked Congress to pass the Beer Act and abolish the ban, so that the government could tax alcohol enterprises, and at the same time raised the personal income tax rate, which were all important ways to provide funds for the New Deal.

　　Roosevelt’s New Deal helped the United States get out of recession and GDP returned to the high growth channel.. President Roosevelt stimulated economic recovery through strong state intervention, such as the establishment of the Federal Emergency Relief Agency and the implementation of "work for relief". Under the government’s "correction", the American economy began to recover. Since 1933, the real GDP has averaged 7.9% year-on-year, the second highest level since data were available. The unemployment rate dropped from 25% in 1933 to 17% in 1936.

• 　　Roosevelt’s New Deal catalyzed the upward movement of the market, and related industries such as steel and water conservancy achieved great gains.

　　In a short-term perspective, the introduction of Roosevelt’s New Deal boosted market confidence, and the Dow and the S&P 500 turned from a previous decline of 1.7% to an increase of over 40%.Compared with Hoover, President Roosevelt implemented stronger state intervention measures, gave a more direct and favorable stimulus to the national economy, and then injected a shot in the arm into the market. The introduction of Roosevelt’s New Deal improved the market’s expectations for the future and became a catalyst for the rapid upward movement of the S&P 500. From March 1933 to July 1933, the P/E ratio of the S&P 500 rose by 76% to 26.3, while the index rose by 52%.

　　From a medium-and long-term perspective, from 1933 to 1936, Roosevelt’s New Deal improved the profitability of US stocks, and the molecular-driven S&P 500 and Dow rose by over 100%.. Among the driving forces, fundamental profit contributed about 75.3% of the increase, and the increase contributed by valuation accounted for less than 1/4. On the molecular side, under the strong financial stimulus of Roosevelt’s New Deal, from 1933 to 1936, the pre-tax profit of enterprises was corrected from-1.3 billion US dollars to 7.1 billion US dollars; On the denominator side, monetary policy remained loose to support the recovery of the real economy. The yield of 10-year US Treasury bonds dropped from 3.3% in 1933 to 2.67% in 1936, which helped the valuation to rise from 14.9 to 18.1.

　　The "tail" of heavy industrialization trend and the stimulation of Roosevelt’s New Deal made 1933-1936 the fastest growth period of steel consumption in American history, and the heavy performance of steel enterprises drove the stock price up.First of all, at the beginning of the 20th century, the United States just finished industrialization, stimulated by World War I and the increase of automobile penetration rate. At that time, American manufacturing and heavy industry were in the "golden age". Secondly, Roosevelt’s New Deal further stimulated the demand for heavy industry products. Taking the steel industry as an example, Roosevelt proposed to build roads, airports, dams and other traditional infrastructure facilities, which made the apparent consumption growth slope of steel obviously steep. From 1933 to 1936, the annual growth rate of pig iron and steel sales in the United States exceeded 30%, far exceeding any four-year cycle since the 20th century. The gradual strong demand has boosted the profits of steel enterprises to be restored. According to the statistics of new york Times, American steel companies were able to make profits every year in the 1930s. The outstanding performance made this company, founded in 1929, replace Coca-Cola in 1935 and become a component of the Dow Jones Industrial Index, which confirmed its extensive influence and excellent market performance.

　　1.2. Eisenhower and the Federal Highway Aid Act

• 　　The actual construction period of the Federal Highway Aid Act is over 30 years, which has limited economic pull.

　　In June 1956, in order to protect the national defense security of the United States, President Eisenhower signed the Federal Aid Highway Act, aiming at providing good roads for the US Army to effectively transport troops and materials to all parts of the country.The bill called for the construction of 66,000 kilometers of intercontinental highway system in ten years, which became the largest public works project in American history at that time. The three main purposes of this plan are: (1) The construction of intercontinental highway is the decisive factor to improve the mobility of the army; (2) With the increase of traffic volume, it is necessary to build a new national highway to connect the old open American national highway system; (3) Restrain the depression in 1954-1955 and promote economic recovery.

　　The budget of the intercontinental expressway construction plan is 25 billion US dollars, accounting for 5.6% of the GDP in 1956.The funds for highway construction mainly come from two parts, 90% of which are borne by the highway trust fund led by the government, which raises funds by taxing fuel, trucks and tires; The remaining 10% is borne by the state governments themselves.

　　Due to the long construction period and low annual investment, the Federal Highway Aid Act did not shake off the shadow of the previous depression, and the American economy continued to decline from 1956 to 1958.Since 1956, the consumption and investment reduced by the contraction of liquidity and the American exports reduced by the spread of the Asian flu epidemic have brought the American economy into recession again. However, because the Federal Highway Aid Act was completed in 1991, it actually took more than 30 years and the average annual investment was lower than expected, so its short-term economic pull was limited, and it did not wash away the negative impact brought by the decline of the troika. The US GDP continued to decline year-on-year and eventually fell to-2.75%.

• 　　The Federal Aid Highway Act has a low correlation with the market trend, and has little pull on cyclical industries.

　　The Federal Highway Aid Act gives the market a high optimistic expectation in the short term, and the term spread rises by 9bp within one month.In the short term, the market has given full optimistic expectations for the plan. Investors expect that the US economy will get out of the recession and the profits of US stocks will accelerate. In the bond market, the yield of 10-year US bonds will go up by 11bp, and the term spread will go up by 9bp from 2.6% to 3.5%.

　　However, from a long perspective, the long logic of the bond market has little relevance to the bill, which is mainly driven by the Fed’s monetary policy and fundamentals.Since August 1956, the upward trend of national debt interest rate and the narrowing of term spread are mainly affected by the tightening of monetary policy by the Federal Reserve. The collapse of short-term interest rate and the sharp rise of 10-1 term spread since October 1957 were due to the sudden reduction of discount rate by the Federal Reserve. Since August, 1958, the Federal Reserve has raised the discount rate by more than 225bp five times, and faced with downside risks after superimposing the high points of fundamental recovery, and the term spread has dropped from 1.7% to-0.5%, showing the phenomenon of upside down.

　　In the short-term dimension, the promulgation of the Federal Highway Aid Act catalyzed the stock market to rise by 5% within one month, but after three months, the market closed down at around-4%.The introduction of the investment plan boosted the market risk appetite in a short time, and the P/E ratio of the S&P 500 rose from 12.8 to 13.7, which made the S&P 500 rise by 4.8%. However, with the disclosure of a series of economic data, such as PMI (falling below threshold) in July 1956 and GDP in the third quarter (further falling to 0.97%), the superposition of the Federal Highway Aid Act has a long period and a small amount, which leads to the market’s negative reaction, and the final profit expectation and valuation decrease slightly, leading to a downward trend.

　　In the medium and long-term dimension, from 1956 to mid-1959, although the Dow and the S&P 500 increased by 30% and 23% respectively, the correlation with the Federal Highway Aid Act was low.From the perspective of driving force, valuation contributed to all the gains of the S&P 500, while the gains contributed by earnings were negative, which means that the stimulus plan failed to repair the profits of US stocks. In terms of stages, US stocks fell first and then rose, showing a √-shaped trend, all of which had little to do with the Federal Highway Aid Act, but were more related to the economic cycle and monetary policy fluctuations.

　　Stage 1: In order to alleviate the inflation caused by overheated demand, the Federal Reserve tightened monetary policy, and the yield of 10-year treasury bonds rose by 94bp, which weakened the fundamentals. Under the combined effect of liquidity tightening and profit reduction, US stocks fell by 16.3%.

　　Stage 2: The government encouraged real estate investment and personal consumption by relaxing mortgage loans, direct subsidies and other stimulus measures. The discount rate was reduced to 1.75% by the Associated Press. The American economy began to recover and the market bottomed out. Since April 1958, both the S&P 500 and the Dow have risen by about 38%.

　　The Federal Aid Highway Act is small in scale, and the superposition of the third scientific and technological revolution makes the industrial trend migrate to the scientific and technological industry, which leads to the weak performance of cyclical stocks.First, due to the long construction period (actually taking 35 years), the average annual investment scale is low, and the capital construction investment plan has limited pull on corporate profits. During the period from 1956 Q2 to 1959 Q2, the three-year CAGR of manufacturing enterprises’ profits was less than 6%. Second, from the forties and fifties of the 20th century, the United States started the third scientific and technological revolution represented by the application of atomic energy technology, aerospace technology and computer technology, which led to the decline of the proportion of traditional industries in GDP. The transformation of economic and industrial structure and the superposition of small-scale infrastructure investment have made the industrial sector market worse. Similarly, taking steel as an example, from 1956 to 1959, the apparent consumption of pig iron and steel decreased by more than 10%, and the sluggish demand caused Bethlehem Iron and Steel Company’s revenue to decline by 2% and its net profit to decline by nearly 35%. Due to the lack of strong profit support, from 1957 to 1959, Bethlehem Steel Company rose less than 9%, underperforming the Dow and S&P 500 in the same period.

　　1.3. Clinton and the information superhighway plan

• 　　NII plans to help the US economy enter the "Golden 90s".

　　In order to promote short-term and medium-and long-term economic growth at the same time, Clinton promulgated the "National Information Infrastructure" strategy (often called the information superhighway plan) after taking office.. On the one hand, the American economy briefly declined in 1991 (GDP was negative for three consecutive quarters); On the other hand, large-scale scientific and technological development plans can transform traditional industries, trigger a new technological revolution and promote private investment, thus achieving the purpose of stimulating economic growth. So in order to get rid of the short-term economic depression and enhance the national competitiveness for a long time, Clinton proposed to build a "road of the 21st century", that is, the information superhighway plan.

　　The Clinton administration plans to invest $400 billion in the information superhighway project (NII plan), which accounts for 6.1% of the US GDP in 1992.Clinton foresightedly pointed out that it is necessary to build a high-speed information network covering the whole country and connecting all parts of the world, and incorporate information from various industries and governments into the network. The specific contents of NII plan include establishing a high-speed computer communication network nationwide to ensure that everyone can enjoy Internet services; Promote information communication and information sharing among government, enterprises, schools, research institutions, libraries and families; Providing computer-assisted instruction for schools; Provide meteorological, earthquake and disaster reduction information to the public.

　　Clinton raised funds for the plan by taxing the rich, overseas enterprises and cutting government spending.Although the investment in NII plan was mainly borne by government expenditure during this period, the expanded expenditure did not put pressure on the government, and the proportion of public debt in GDP even decreased by about 2% during this period. We believe that this is mainly due to the Clinton administration’s "increasing revenue and reducing expenditure": (1) taxing the rich and overseas enterprises to obtain income of about $86 billion; (2) Clinton proposed to cut government spending by $140 billion in four years, and fired 25% employees of the White House and Congress and 100,000 federal government employees.

　　Thanks to the total factor productivity growth brought by the information superhighway plan, from 1993 to 1996, the production efficiency of the United States was greatly improved, keeping the GDP growth rate at around 3.3%.In the middle and late 1990s, the rapid growth of labor productivity in the United States mainly came from the total factor productivity growth (contributing 50%), while the total factor productivity growth came from the improvement of technology. Some studies show that the contribution rate of high-tech departments to TFP (total factor growth rate) growth is 73%. With the rapid rise of TFP, the GDP of the United States rose to the center of 3.3% year-on-year.

• 　　NII plans to improve corporate profitability, and the performance of "new infrastructure" is better than that of "old infrastructure"

　　The landing of NII plan has strengthened the optimistic expectations of the market for the economy in the short term, and the term spread of US 10-2 Treasury bonds has expanded in the short term.After Clinton officially announced the information superhighway plan in September, the market’s optimistic expectation of fundamentals was quickly priced in, and the term spread of 10-year and 2-year treasury bond yields in the United States reversed the previous decline in a short period of time, and rose slightly by 11bp in three months.

　　But in the long run, the impact of NII plan on the bond market is relatively small.Because during 1994-1995, both the individual interest rate of national debt and the change of term spread were mainly influenced by American monetary policy, the upward trend of risk-free interest rate in 1994 and the downward trend in 1995 were highly related to the pace of interest rate hike and interest rate cut by the Federal Reserve at that time. In 1996, the rising interest rate of national debt and the flattening of term structure were driven by inflation expectation and the expectation of raising interest rate (in 1996, the US CPI rose from 2.8% to 3.3% year-on-year).

　　From a short-term perspective, the information superhighway plan has enabled the previous bull market to continue, but it is relatively more beneficial to the technology industry. The Nasdaq closed up 2.8%, higher than the S&P 500 and the Dow in the same period.Because the policies contained in the information superhighway plan are obviously oriented to science and technology, such as the development of biotechnology, aerospace and so on, the science and technology sector has been rising since the plan was introduced. Within one month after the policy was promulgated, the Nasdaq rose by 7.5%, higher than the 0.4% of the Dow and the 2.1% of the S&P 500 in the same period. However, the third quarterly report disclosed by listed companies in October 1993 showed that the performance of blue-chip stocks exceeded expectations, which led to the rapid rise of the Dow and the withdrawal of the Nasdaq.

　　From a medium-and long-term perspective, after the implementation of the NII plan, the S&P 500 rose by 49%, while the Dow and Nasdaq rose by 63%.Among them, the downward valuation has caused a negative contribution of more than-30% to the S&P 500, and the profit has dominated the US stock market by nearly 80%. On the molecular side, the after-tax profits of American companies rose by 86% from 530 billion to around 900 billion dollars, and the basic earnings per share of the S&P 500 also doubled from 13.4 to more than 35. On the denominator side, since the end of 1994, the yield of US 10-year Treasury bonds has fluctuated from 5.4% to around 6.8%, which has brought the P/E ratio of the S&P 500 back to 18.2 from 24.8.

　　The information superhighway plan favors the direction of "new infrastructure", overlapping industrial trends and shifting to high-tech industries, thus opening the era of information technology industry.First of all, Clinton believes that infrastructure investment should not be limited to traditional roads and bridges, but should be invested in information technology facilities (such as increasing PC and Internet penetration) and human infrastructure (such as attaching importance to basic scientific research and university education). Secondly, since the advent of IBM-PC in 1981, the United States has gradually entered the era of information internet. From 1933 to 1937, the added value of information and communication technology industry jumped from 3.3% to 5.9% of GDP.

　　Preference for the stimulus plan of the technology industry, superimposed on the wave of information internet industry since the 1980 s, has made the technology growth industry rise at the top.On the one hand, Clinton’s NII plan focuses on encouraging high-tech industries such as information technology, while giving relatively little support to traditional industries. On the other hand, at that time, the United States was gradually entering the Internet era, and the prosperity of science and technology industries was in a rapid upward channel. Industrial trends and policy dividends make the market performance of science and technology growth plate excellent in both short-term and medium-and long-term dimensions. For example, industries with strong scientific and technological attributes such as biotechnology and software have always performed better than the market. On the other hand, the cyclical sector did not enjoy the policy dividend, but also ran counter to the migration trend of the industry, making it underperform the technology sector and the S&P 500.

　　1.4. Obama and American Recovery and Reinvestment Act of 2009

• 　　ARRA Act Helps America Get Out of the Financial Crisis

　　In order to save the United States from the financial crisis, in February 2009, Obama signed the American Recovery and Reinvestment Act of 2009 (ARRA).This economic stimulus plan aims to revive the American economy by investing in infrastructure, education and health care programs. Among them, the investment in infrastructure projects is mainly divided into five aspects: transportation, sewage and environmental treatment, government buildings, communication and information security and energy facilities.

　　The total initial investment of the ARRA Act was $787 billion (later revised to $831 billion), accounting for 5.8% of the US GDP in 2009; The total investment in infrastructure and new energy is $ 1325(1053+272) billion, accounting for 0.92%.In infrastructure projects, government investment mainly focuses on transportation (48.1 billion) and water, sewage, environment and public land management (18 billion), including highway and bridge construction (27.5 billion), high-speed rail construction (8 billion), public transport (6.9 billion), environmental restoration, flood control, hydropower and navigation infrastructure projects (46 billion). Among the new energy projects, Obama mainly focuses on the research and development of renewable energy and power transmission technology (6 billion) and housing manufacturing with energy saving and emission reduction (5 billion).

　　The federal government raised funds for the ARRA Act by issuing national debt.Due to Obama’s policy of reducing taxes and expanding government spending, in order to raise the investment amount, the government mainly issued treasury bonds. In 2009 alone, the United States issued 7.47 trillion US dollars of treasury bonds, an increase of 43% compared with 2008, and the proportion of GDP moved up from 30% to about 50%. Overall, by the end of 2012, the proportion of public debt in GDP in the United States had increased by 23% to 100.5%.

　　Obama’s American Recovery and Reinvestment Act of 2009 helped the United States get out of the financial crisis quickly.According to CBO (Congressional Budget Office, the same below), in each quarter from 2009 Q1 to 2013 Q1, the ARRA Act boosted GDP growth by 0.1%-4.6%, and reduced the unemployment rate by 0.1%-1.8%.

• 　　The stimulus bill makes cyclical stocks dominate in the short term, but the medium and long-term growth style is king.

　　The introduction of the ARRA Act, superimposed on the announcement by the Federal Reserve to expand the scale of QE1, deepened the optimistic expectations of the market for economic recovery, and inflation expectations pushed up the yield of 10-year US bonds and widened the 10-2 maturity spread.Within three months from the official announcement of the stimulus plan, the market took a very positive attitude towards the recovery of fundamentals. The inflation expectation in the United States rose by 96bp to 2.07%, driving the yield of 10-year treasury bonds up by 134bp. In addition, the improvement in fundamentals and the loosening of liquidity are also reflected in the increase in the spread between long and short interest rates from 1.8% to 2.6%.

　　From a short-term perspective, the ARRA Act failed to reverse the previous decline in the market, and the extremely loose monetary policy was the clarion call for the market counterattack. Since the Federal Reserve announced the expansion of QE1, the valuation rebound has driven the three major stock indexes to rise by 5%.Although on February 17th, 2009, Obama promulgated the largest stimulus bill since the Great Depression, due to the time lag effect, the market was still immersed in the panic of the financial crisis. As of March 9th, the fragile market sentiment reduced the valuation by more than 10pct, dragging down the three major stock indexes by more than 10%. It was not until the middle and late March that the market began to pick up after the Federal Reserve announced the expansion of QE2 (purchase of 750 billion US dollars of MBS, 100 billion US dollars of institutional bonds and 300 billion US dollars of long-term government bonds) and the subsequent US/global continuous water release. During 2009/2/17-2009/5/17, the P/E ratio rebounded by more than 25%, driving the three major stock indexes to rise by about 5%.

　　From the medium and long-term perspective, the improvement of corporate fundamental profitability and the loose monetary policy have made US stocks rebound from the low point, and the cumulative increase of the S&P 500/ Dow/Nasdaq in three years has recorded 72%/71%/101%.Among them, for the S&P 500, the profit contributed 75% to the increase; For the Dow, the profit contributed 100% increase, and the valuation only drove the index to rise by less than 0.1%; For the Nasdaq, the profit-leading index rose by over 100%, while the valuation dragged down the index slightly by 0.17%. Specifically, on the molecular side, during the period from 2009 Q1 to 2012 Q1, the profits of non-financial enterprises in the United States increased by 65% from $692 billion to $1,145 billion, the profits of the S&P 500 increased by 117%, the Dow increased by 400%, and the Nasdaq increased by 300%. On the denominator side, the federal funds rate has remained at a very low level of 0.1% for a long time. With the implementation of unlimited QE policy, the upside of US stock valuation has been completely opened.

　　In terms of style performance, ARRA Act’s short-term catalytic value stocks are dominant, but under the blessing of mobile Internet trends, the long-term benefits of growth style are even better.With the implementation of the US stimulus bill and China’s "4 trillion plan", the mainstream style of the market switched from growth to recovery trading. As of May 2009, the ratio of growth to value index of the S&P 1500 dropped from 1.31 to 1.17. However, with the launch of Iphone4 in June 2010, the trend of mobile Internet was announced, and the Federal Reserve continued to be loose, and the growth style was obviously dominant. The attention of funds returned to growth stocks. As of May 2012, the ratio of growth to value rose to 1.33.

　　In terms of industry performance, in the short-term dimension, the performance of cyclical stocks is slightly better. In the long run, the technology sector has a higher increase:

　　(1) Within three months after the promulgation of the 1)ARRA Act, the raw materials and industry sectors rose by 22.4% and 10.3%, and the information technology industry rose by 12.9%; In the third-tier industries of GICS, the average price of cyclical stocks such as construction products, chemicals, industrial groups and machinery is 19.6%, and the median price is 20.6%, which is slightly higher than the average price and median price of hi-tech stocks such as biotechnology and software.

　　(2) In the medium and long term, as of February 2012, the raw materials and industrial sectors both recorded an increase of about 80%, which was lower than the increase of 95.4% in the technology industry; In the third-level industries of GICS, the average growth rate of cyclical stocks such as construction and building materials is 45.2%, with a median of 43.8%, which is lower than the average (81.6%) and median (60%) of the corresponding technology industries such as software and electronic components.

　　From the perspective of driving force, under the background of the mobile Internet industry, the improvement in the profitability of cyclical industries is less than that of technology stocks, which is the core factor that is difficult to outperform in the medium and long term:

　　(1) On the index level, the profit growth rate of Dow Jones, which symbolizes cyclical stocks, is significantly lower than that of Nasdaq, which represents the technology industry, and slightly lower than that of the comprehensive S&P 500;

　　(2) At the industry level, the average increase of EPS in infrastructure-related industries is only 0.41% (57.3% after excluding negative values), which is significantly lower than the 121% in the science and technology sector;

　　(3) At the level of individual stocks, according to the GICS first-class industry classification, the revenue growth rate of leading stocks (the top 5 in market value) in cyclical industries such as machinery, chemicals and metals is significantly lower than that of technology star stocks (FAAMG). Taking Caterpillar and Freeport McMullen as examples, we can see that although their revenues have increased by 30% and 20% respectively, they are still lower than Internet companies such as Apple and Facebook for a long time.

　　The small scale of infrastructure investment and the trend of mobile internet launched in 2010 are the reasons why the profit growth rate of the cyclical sector is lower than that of technology companies such as FAAMG.On the one hand, the total investment in infrastructure and new energy included in the ARRA Act is $132.5 billion, accounting for 16% of all expenditures in the stimulus policy and accounting for 0.92% of GDP in 2009. If the investment is made in a 10-year equal way, the proportion of investment is even negligible, so it is difficult for a small scale to significantly improve the profitability of the infrastructure industry. On the other hand, in 2009, the United States entered the era of mobile Internet from the Internet era, and smart phones and related products achieved all-round penetration. The smart phone industry chain represented by companies such as Apple, Facebook and Amazon rose rapidly, and the corresponding performance was constantly increasing.

　　1.5. What are the similarities and differences between Roosevelt’s New Deal and Obama’s ARRA Act?

• 　　Commonality 1: Before the introduction of the infrastructure investment plan, the American economy declined, and after the introduction, the American economy rebounded.

　　On the eve of the introduction of the four infrastructure investment plans, the American economy is facing recession, so they all contain the purpose of stimulating economic recovery.Starting from the historical background of the promulgation of the bill, and combining with the definition of recession by the US Bureau of Economic Analysis (NEBR), we can see that these four plans were either promulgated during the recession, for example, Obama’s ARRA bill was promulgated in 2009 in the financial crisis, or at the time when the US economy just came out of recession, for example, the information superhighway plan was promulgated in 1992 (the negative GDP growth brought by the US just came out of the Gulf War). So what they have in common is to help the US economy achieve positive growth again. For example, Roosevelt’s New Deal, which was launched in 1933, was mainly aimed at reducing the unemployment rate and helping the American economy recover from the Great Depression.

　　The larger the scale of the infrastructure investment plan and the shorter the time it takes, the more obvious the pulling effect on the economy will be.As shown in Figure 2, we can see that Roosevelt’s New Deal, the information superhighway plan, and the introduction of the ARRA Act have all brought American GDP back to the high growth channel. The main reasons why the Federal Highway Aid Act failed to help the American economy completely out of recession are that it took too long (the actual construction period exceeded 30 years) and the average annual investment allocated was low.

• 　　Commonality 2: Under the medium and long-term dimension, US stocks generally rose within three years after infrastructure investment.

　　Judging from the trend, after the introduction of four infrastructure investment plans, US stocks have achieved positive growth in different degrees. From the perspective of driving force, except for the Federal Aid Highway Act, the other three stimulus plans promoted the economy to improve, the fundamentals of enterprises went up, and the liquidity was loose, which jointly pushed up the US stock market.Investment plans can quickly stimulate economic and corporate performance recovery in a short period of time. The superimposed government usually cooperates with a proactive fiscal policy with a loose monetary policy, and the numerator resonates with the denominator to drive the market upward. Take Roosevelt’s New Deal as an example. From 1933 to 1936, the pre-tax profit of enterprises was corrected from-1.3 billion US dollars to 7.1 billion US dollars, and the improvement of profits drove the market to rise by over 100%. One exception is that although the Dow and the S&P 500 achieved gains of more than 20%, the correlation with the Federal Highway Aid Act was low, because the valuation contributed all the gains, and the stimulus plan failed to repair the profits of US stocks.

• 　　Feature 1: The financing methods of previous infrastructure investments are quite different.

　　The fund-raising measures of the four infrastructure investment plans in history are quite different, including reducing other government expenditures, increasing tax burden, setting up trust funds and issuing government bonds.Specifically, (1) Roosevelt raised the funds needed for the New Deal by reducing government expenditure and increasing the income tax of individuals and alcohol enterprises; (2) 90% of the funds for the construction of intercontinental highways come from the highway trust fund led by the free government, and the remaining 10% is borne by the state governments themselves; (3) Clinton raised funds for the plan by taxing the rich and overseas enterprises and cutting government spending; (4) After the subprime mortgage crisis, the Obama administration issued a large number of government bonds to raise funds for the ARRA Act.

• 　　Feature 2: From a short-term perspective, the trend of US stocks is divided.

　　Judging from the overall increase, the infrastructure investment plan has different boosting effects on market sentiment, which makes the trend of subsequent US stocks different.Compared with the Federal Highway Aid Act and NII Plan, the introduction of the New Deal and the ARRA Act has a more obvious short-term stimulating effect on the market, which is mainly due to the existence of a low cardinal utility in the market due to the Great Depression in 1929 and the subprime mortgage crisis in 2008. For example, US stocks fell by 8.1% in the three months before the introduction of the ARRA Act, while on the eve of the introduction of the information superhighway plan, US stocks were actually in a bull market.

　　From the short-term perspective, Roosevelt’s New Deal and ARRA Act catalyze the market to accelerate upward; After the promulgation of the Federal Highway Aid Act, US stocks "promoted first and then suppressed"; The NII plan has little impact on the market.Among them: (1) Compared with Hoover, Roosevelt’s New Deal emphasized Keynesianism, raised the market’s expectation of fundamental shift, injected a shot in the arm for investors, and helped the Dow and S&P 500 to turn from a previous decline of 1.7% to a rise of over 40%; (2) The promulgation of the Federal Aid Highway Act catalyzed the stock market to boost market risk appetite within one month, which led to a rebound in valuation and an increase of 4.8% in the index. However, three months later, with the disclosure of economic data such as PMI (falling below threshold) in July 1956, the mood became pessimistic again, causing the market to close down at around-4%; (3) The 3)NII plan is in line with the market’s previous expectations. The overlay market is in a bull market, so its improvement on market sentiment is relatively limited. In addition, due to the technology-oriented reasons, the S&P 500 stocks benefit less; (4) The introduction of the 4)ARRA Act has not changed the previous decline of the market, and the extremely loose monetary policy is the clarion call for the market counterattack. Since the Federal Reserve announced the expansion of QE1, the valuation rebound has driven the three major stock indexes to rise by 5%.

　　1.6. Can the infrastructure investment plan definitely stimulate cyclical stocks to go up?

　　First of all, our answer is a capital no!

　　Only when the content of the stimulus bill is highly matched with the contemporary industry trends, the infrastructure investment plan is the catalyst for the long-term trend rise of the US stock market and related industries, otherwise the stimulus plan will only be "twice the result with half the effort".For example, the emphasis on the "tail" of the industrialization trend and the stimulation of Roosevelt’s New Deal made 1933-1936 the fastest growth period of steel consumption in American history, and the heavy corporate performance drove the stock price upward. When the content contained in the investment plan is contrary to the industrial cycle, the stimulus bill can only benefit the relevant industries in the short term at most, and the market trend in the medium and long term is still dominated by the industrial trend. For example, the short-term catalytic value and cyclical stocks of the ARRA Act are dominant, but under the blessing of the mobile Internet trend, the growth style and the long-term returns of technology stocks are better.

　　2. Finding Differences —— In-depth Analysis of Biden’s Version 6.24 Infrastructure Plan

　　2.1. American infrastructure investment is urgent.

　　The infrastructure of the United States is backward, which is inconsistent with its status as an economic power. This year’s snowstorm caused a large-scale power outage in Texas, USA, reflecting the serious aging of local power facilities.Moreover, the Economist published an article entitled "The Storm in Texas Exposes the Backward Infrastructure in the United States" on February 20th, revealing that some infrastructure facilities in other parts of the United States are equally outdated except the power system in Texas. On the whole, Biden pointed out in his speech that the United States is the richest country in the world, but it can only rank 13th in the world in terms of the overall quality of infrastructure. Specifically, about one-third of the roads with a total length of about 6.587 million kilometers in the United States are in poor condition; Of the total of about 614,000 bridges, about 56,000 have structural deficiencies; The average age of 90,580 dams is 56 years, and about 15,500 dams are "potentially dangerous". Among the top 25 airports in the world, the United States is "unknown on the list".

　　Theoretically, the increase of public capital stock, such as building or renovating roads, not only increases direct output in the near future, but also allows individuals and enterprises to increase productivity in the long run.PedroBom and Jenny Ligthart use meta-regression analysis to conclude that every 1% increase in public capital stock will increase the economic output level of the private sector by 0.083% in the short term and increase its long-term level by 0.122%. In addition, the government’s investment in infrastructure projects related to traditional buildings plays a more significant role in improving economic output and production efficiency. For example, Aschuauer pointed out that every 1% increase in investment in traditional infrastructure projects such as roads, transmission lines and bridges can increase the output rate by 0.23%, which is significantly greater than the output increase caused by changes in public capital stock.

　　2.2. In the first five years of the infrastructure investment plan, the expenditure increased by 597 billion yuan, totaling 973 billion yuan.

　　On June 24, 2021, local time, US President Biden reached a preliminary agreement with a group of Democratic and Republican senators on the $1.2 trillion infrastructure spending plan.According to the White House official website, Biden’s infrastructure investment plan has two versions: 973 billion in five years and 1.2 trillion in eight years. Among them, the $597 billion which is highly concerned by the market is the new expenditure under the five-year dimension, and the remaining nearly $400 billion is the established expenditure, which is the baseline mentioned by the two parties.

　　In terms of investment scale, the investment scale of $973 billion in the first five years accounted for 4.6% of GDP in 2020, and the average annual investment scale accounted for the highest proportion of GDP in 80 years.Assuming that the investment in the first five years is spent equally, the proportion of the annual infrastructure investment in the GDP of that year fluctuates within the range of 0.73%-0.88%. Vertically, it is slightly lower than the proportion of total government investment in infrastructure since the 1990s (1%), but significantly higher than the central value of federal government investment in infrastructure projects (0.04%). Horizontally, the average annual investment scale this time is significantly higher than that of ARRA Act (0.06%-0.08%), Information Superhighway Plan (0.25%-0.58) and Federal Highway Aid Act (0.31%-0.56%), second only to Roosevelt’s New Deal (3.3%-4.9%).

　　Compared with China, the proportion of infrastructure investment in GDP in the United States in the next five years will be 1.7%, which is still significantly lower than that in China in the past five years (19.5%).In China, according to the data of the National Bureau of Statistics, the average infrastructure investment in China from 2016 to 2020 was 17.5 trillion yuan (about 2.73 trillion US dollars, calculated at the exchange rate of 6.39), accounting for 19.5% of the GDP in the same period. In the United States, we summarize the new expenditures included in Biden’s infrastructure projects and the original government infrastructure expenditures (considering the "small government" model in the United States, most of its infrastructure projects are implemented by local governments, so we also include the infrastructure expenditures of local governments in the statistics; Assuming that the original expenditure has increased by 2% in the past 10 years, we calculate that the US government will spend $415.3 billion on infrastructure projects in the next five years, accounting for 1.6%-1.85% of the GDP forecast in the next eight years.

　　From the investment direction, Biden’s infrastructure plan will focus on traditional transportation infrastructure investment, with a total investment of 973 billion US dollars (579 billion new expenditure+395 billion baseline expenditure).Specifically, transportation facilities are key investment areas, mainly including the construction of roads, bridges, airports, railways and other buildings and facilities and the improvement of public transportation. Other investments mainly include the upgrading of national water supply systems, power facilities and broadband networks.

　　2.3. The financing scheme of infrastructure investment is uncertain.

　　According to the statement issued by the White House on June 24th and the third-party media reports, the bipartisan discussion group provided 13 financing methods for infrastructure investment, and it is expected to raise $584 billion in an ideal situation.Specifically, the unified financing methods of the two parties include the remaining COVID-19 epidemic relief funds (80 billion), reducing the tax gap of IRS (100 billion), PPP and direct payment of municipal bonds (100 billion), auction revenue of 5G spectrum (65 billion), oil sales revenue from strategic reserves (6 billion) and strengthening the review of unemployment insurance plan (72 billion). Judging from the amount of financing disclosed at present, theoretically, it seems that the two parties can "easily" raise the funds needed for infrastructure investment (579 billion). In addition, it seems that the source of funds will not increase the debt burden of the US government due to the extra expenditure. According to PWB’s calculation, by 2031, the 6.24 version of the infrastructure investment plan will only increase the government debt by 0.4pct.

　　The above analysis is only valid in theory, and then we will discuss the feasibility of several important financing items:

　　Although the official statement on reusing about $80 billion of Covid-19 relief funds has not yet been made, according to the data disclosed by the US Treasury Department, at least $1.5 trillion of COVID-19 epidemic expenditure in the United States has not been used (the balance of TGA account on June 30 was $851.9 billion).From the perspective of government expenditure and balance, we think it is feasible for the United States to raise $80 billion.

　　After the financial crisis, the dependence of PPP projects on government payment in expressways is much higher than that before the financial crisis; At the government level, the proportion of federal subsidies is rising in projects that need private sector financing.In other words, PPI financing may not only fail to "reduce the burden" for the government, but will increase government expenditure.

　　According to IRS officials’ calculations, the tax gap in the United States in 2019 is as high as $574 billion. Therefore, in theory, the government can raise $100 billion by reducing the difference between tax payable and tax paid (including unreported taxes and underpaid taxes from remittances).However, considering (1) the phenomenon of tax evasion in the United States mostly happens to the rich, and the pressure on the rich to check tax evasion is no less than direct taxation; (2)IRS needs at least 5 years to train a professional auditor; (3) According to Biden’s budget report for fiscal year 2022 submitted to Congress, the additional tax revenue of IRS will be mainly used for American Families Plan, so there is still great uncertainty whether Biden can raise 100 billion dollars as he wishes in the next five years.

　　At present, White House officials have proved that the 5G spectrum was sold in February, but the income was originally planned to be included in the government revenue. At present, there is no clear and specific news to confirm whether it can be used for infrastructure investment.In addition, in the 1980s, there was a precedent that the government sold spectrum to finance expenditure, but the result was not satisfactory.

　　By increasing the audit of unemployment benefits to reduce the corresponding expenses, there is a high probability that it will not raise 72 billion US dollars for the government.Because it is estimated that in the next ten years, the unemployment expenses overpaid by fraud in the United States may only be close to $35 billion. Economist Dean Baker pointed out that it is impossible for the two parties to raise up to 70 billion through this method, and it is difficult to examine the qualifications of people receiving unemployment benefits, so it is difficult for the government to fully recover the difference. In addition, this move may have a negative spillover effect on employment in the United States. Therefore, it is still doubtful whether the government has the "courage" to implement this policy in the context that the current employment has not yet returned to the normal level before the epidemic.

　　To sum up, in the financing part of the two-party infrastructure framework, there is great uncertainty about the source of funds, so the market needs to pay close attention to the subsequent adjustment of the source of funds by Congress.

　　2.4. The new agreement focuses on investing in traditional infrastructure, but pays less attention to new infrastructure.

　　Baseline’s expenditure is mainly used for the construction of expressways, but less for "new infrastructure".According to the budget details disclosed by CBO in early July, in the next five years, the baseline expenditure (excluding R&D expenses, employee salaries and benefits) of various departments in the United States will be $525.35 billion, and the investment of the Ministry of Communications in transportation infrastructure will be $442.5 billion. In terms of investment types, baseline mainly invests in land transportation ($340.9 billion, accounting for 65%), followed by air transportation ($121.7 billion, accounting for 23.2%), with less investment in water transportation and maritime transportation ($61.8 billion, accounting for 11.8%). In terms of land transportation facilities, Congress expects to spend more than $240 billion on the construction of expressways.

　　As far as the new expenditure is concerned, compared with the American Employment Plan published in March and May, the 6.24 version only contains investment in infrastructure, indicating that the two parties have not reached a consensus on revitalizing manufacturing, social care and human resources investment.Compared with the original version of the American Employment Plan, in addition to infrastructure investment, the Democratic Party also emphasized the investment in manufacturing (revitalizing the manufacturing industry by 300 billion yuan, investing in research and development by 180 billion yuan), social care (nursing services by 400 billion yuan) and labor development (human resources by 100 billion yuan). In the version of the preliminary agreement reached by the two parties on June 24, the investment and words related to manufacturing and humanistic care are zero, or the two parties have not yet reached an agreement on these matters, and there is still the possibility of further negotiations in the future.

　　Compared with the first two versions, the total scale of infrastructure investment in the version agreed by the two parties on June 24 is halved. On the whole, in more than two months, infrastructure investment expenditure has halved from 1.2-13 trillion US dollars to 578 billion US dollars, and the investment scale has shrunk by 56%.Among them, the transportation infrastructure decreased by nearly 50%, and other areas where the expenditure decreased more included educational buildings and facilities (137 billion →0), providing pure water for the whole people (110 billion → 55 billion), building affordable housing (more than 200 billion →0), veterans’ hospital (18 billion →0) and modernizing federal buildings (10 billion → It is worth mentioning that this agreement adds three sub-areas of expenditure, namely, environmental improvement (21 billion), resilient infrastructure (47 billion) and western water storage facilities (5 billion).

　　In the transportation field with the largest share of the two investments, the traditional infrastructure such as roads and bridges has changed little, and the investment quota for new energy has been greatly reduced by more than 90%:(1) Based on the version published in 6.24, the expenditure on improving traditional infrastructure facilities such as roads and public transport has shrunk relatively little, with the investment in newly built roads falling by 5.2%, the investment in road maintenance (Safety item in 6.24) falling by 42.4%, the investment in public transport falling by 45%, the investment in passenger transport and freight transport falling by 17.5%, the investment in ports and waterways falling by 5.9%, and the investment related to the airport remaining at 2000. (2) New energy-related investment (including direct investment in electric buses and charging piles) has dropped from the previous $174 billion to today’s $15 billion, less than 1/10 of the initial scale; The investment in reconnecting old communities has also plummeted from 20 billion to 1 billion US dollars, which is second only to the new energy field. (3) In the new agreement, the new infrasturcturefianncing item (Infrastructural Financing) is added with a quota of $20 billion, while excluding the overly complicated projects, the quota is $25 billion, which may have a certain degree of substitution logic.

　　Compared with the ARRA act of Obama in 2009,(1) On the whole, excluding baseline expenditure or not, Biden’s overall scale of infrastructure investment is higher than the infrastructure part ($132.5 billion) included in the ARRA Act, and its proportion in GDP and its stimulating effect on the economy will obviously be higher.(2) From the structural point of view, both investment bills pay the most attention to the traditional transportation infrastructure, but Biden’s investment plan pays more attention to the investment in transportation infrastructure, accounting for about 15pct of the total expenditure, and the investment in broadband (compared with the investment in network and communication technology in 2009) is also 3.3% higher;The investment proportion of this round of infrastructure investment plan in the energy field (including traditional energy such as electricity and new energy such as electricity) is lower than that in the ARRA Act, and the expenditure on new energy is significantly lower.

　　2.5. Deduce the influence of Biden’s infrastructure plan according to historical laws.

• 　　There is no systemic risk in the fundamentals of the United States, but it is difficult for US stocks to increase significantly.

　　Similar to the four infrastructure investments in history, the American economy was hit by the COVID-19 epidemic in 2020.Due to the negative impact of public health events, in 2020, both consumption and production in the United States declined, and the negative GDP growth was similar to the macroeconomic background before the introduction of the previous four infrastructure investment plans. Therefore, we infer that the main purpose of Biden’s infrastructure investment plan is to help the US economy recover.

　　Short-term, infrastructure investment plans, with a high annual investment scale, help to maintain the momentum or expectation of economic recovery, and there is no systemic risk in the fundamentals of the United States.Assuming that the $973 billion specified in the 6.24 agreement is invested equally, without considering the multiplier effect, we can roughly draw that the investment amount over the years has driven GDP by 0.73%-0.88%. After the multiplier effect is superimposed, infrastructure investment is expected to boost the GDP growth of the United States by 1.08%-1.77% in the first two years. Under the blessing of Keynesian effect, infrastructure investment can play a greater role in economic growth than other forms of fiscal expenditure. Referring to the forecasts of fiscal multipliers made by CBO and other think tanks and professional institutions, we estimate that the US infrastructure investment plan can boost GDP by more than 1% in the first two years.

　　In the short term, this round of infrastructure investment plan can stimulate the rise of US stocks, but considering that the current stock market has fully reflected expectations, the increase will not be too high.When Biden announced that the two parties had reached an agreement on the $579 billion infrastructure investment plan, US stocks rose sharply, and the introduction of four superimposed infrastructure investments became a catalyst for the upward market within three months. We believe that Biden’s infrastructure investment will play the same role. However, what is different is that the extremely loose liquidity in the past year has led to the optimistic expectation that asset pricein have fully recovered in the economy. Therefore, under the premise that infrastructure investment plans cannot bring about unexpected growth, it is difficult for US stocks to rise sharply in the short term. For example, after the introduction of the information superhighway plan, because the market had already expected this information (as early as 1992, Clinton took it as the campaign platform), the superimposed US stocks continued to rise in the early stage, so the final plan only catalyzed a slight increase in US stocks after landing.

　　In terms of industry and style rotation, in the three years after the promulgation of ARRA Act, the process of transferring value to growing style since 2007 was interrupted, and the excess return of technology sector relative to cyclical stocks was not significant during this period.In terms of style, from February 2009 to February 2012, the average ratio of Russell 3000 value index to growth index (S&P 500 value and growth) was 1.8(0.9), and the volatility was 0.06(0.03), which was significantly lower than the two rounds of obvious style switching periods from 2007 to early 2009 and from mid to late 2013. In terms of industry, the ratio of information technology to industry has been stable in the range of 1.3-1.5 during this period, and it has not accelerated as in the period from 2007 to 2009 or from the middle and late 2013 to the present.

　　In the short term, considering that it has been 10 years since the last round of mobile Internet cycle, with the implementation of larger-scale infrastructure investment plans, the cycle is more dominant in the short term.Compared with the ARRA method, this round of infrastructure investment plan may make cyclical stocks outperform growth stocks, which is mainly determined by two reasons: (1) The scale of infrastructure investment this time far exceeds the ARRA method, and the average annual investment ratio to GDP is more than four times (4.6% and 0.09%); (2) Before the introduction of the 2)ARRA Act, the period from 2001 to 2007 was dominated by value, and the background of this infrastructure investment plan is that the growth in the past decade is king.

　　The discounted infrastructure investment plan is difficult to continue to drive the US stock market in the second half of the year.Because in the past few quarters, US stocks have fully responded to the infrastructure investment plan, and the cyclical stocks in 2020.10-2021.5 obviously outperformed the technology growth stocks. Inflation expectations and long-term yields of US bonds experienced a staged surge in the first half of the year, but they have all fallen back since June.

• 　　US infrastructure investment is not China’s "4 trillion", so it is difficult for cyclical stocks to have big opportunities.

　　In the medium term, the US infrastructure investment plan is expected to bring structural opportunities for related industrial chains around the world. However, it is difficult to replicate the "cyclical industry boom" in China’s golden age of infrastructure, and it may not be an opportunity for cyclical stocks in the United States.

　　First of all, after decades of globalization, the economic structure and social structure of the United States are faced with large-scale infrastructure projects, and it is difficult to give full play to the high efficiency of China as a strong infrastructure country in the whole industrial chain.On the one hand, the United States is no longer an investment-driven economy, and the contribution of fixed capital investment to the American economy is "sunset". The proportion of fixed capital formation in GDP is 20.8%, which is lower than that of China’s 43%. On the other hand, the American people are not as hard-working as Chinese, and there are great efficiency problems in the construction of infrastructure facilities. For example, it took the United States 15 years to build a bridge, while China could build a railway station within 9 hours, which even led Musk to say that "China’s infrastructure development is more than 100 times ahead of the United States!"

　　Secondly, the effect of traditional infrastructure is constrained by the "sequela" of the unprecedented "big water release" in the past two years in the United States, especially the deep-seated structural problems such as insufficient labor participation of the two parties, widening gap between the rich and the poor, ethnic conflicts and intensified political games.

　　The impact of the epidemic on the service industry is still there, superimposed on the "big water release" in the United States, resulting in insufficient labor participation rate and high unemployment rate.On the one hand, since the outbreak, successive rounds of fiscal stimulus in the United States have provided unemployment subsidies higher than the wages of some low-income industries, and American residents’ current willingness to work is low. Among them, the labor participation rate of people with low academic qualifications (often low income) was 44.1% in June, a decrease of 7.5% compared with last February, which was significantly higher than that of other people with academic qualifications, pointing to the slow willingness of people with low quality to resume employment. On the other hand, the impact of the epidemic has not completely faded, especially the service industry has not started 100% (the employment of service occupations in June is still 18 million short of the previous normal level), and the slow recovery of the service industry has had a significant impact on low-income people. According to Track the recovery data, the employment of low-income people in the United States has decreased by 28.7% compared with January 2020.

　　The Federal Reserve’s "flood irrigation" pushed up asset prices, and the rich benefited more, further widening the gap between the rich and the poor. Since 2019, as the Federal Reserve began to cut interest rates and implement unlimited QE, unusually abundant liquidity flooded into the market, gradually raising the price of US stocks. By the end of June this year, the S&P 500 rose by 71.4% and the Nasdaq rose by 118.6%. The bull market has brought capital income to investors, but relatively speaking, the rich are more profitable. According to the Federal Reserve’s calculation, as of the first quarter of this year, the rich in the 1% of American wealth held 32.1% of the total wealth in the United States, which was 30.1% higher than the total wealth held by the bottom 50%. The gap between the rich and the poor in wealth has expanded by 0.8pct compared with the end of 2018.

　　In terms of racial contradictions,The contradiction between colored people and white people in the United States has been squeezed for a long time, and the outbreak of the COVID-19 epidemic has fully exposed and continuously worsened the long-standing racial discrimination in the United States, such as the "Black Lives Matter" activity that has arisen since 2020.

　　In terms of partisan contradictions, after Biden took office, the two parties in the United States could not reach an agreement on many issues.The situation that the governor openly challenges the president also happens frequently, the partisan confrontation intensifies and the struggle becomes increasingly fierce. A variety of contradictions are intertwined, leading to further tearing of American society.

• 　　The 624 infrastructure plan is "incompatible" with the industrial trend of scientific and technological innovation, and we will pay close attention to the introduction of the "generalized infrastructure" investment plan.

　　For a long time, traditional infrastructure investment does not conform to the long-term industrial trend driven by scientific and technological innovation in the United States, and Biden’s 624 version of the infrastructure plan is difficult to promote the long-term prosperity of the American economy.Since the 1980s, the United States has formed a technology-oriented economy, which is reflected in the fact that the market value and net profit of US technology stocks account for the highest proportion. At present, the science and technology industry plays a dominant role in the economy, and the superimposed infrastructure plan focuses on traditional infrastructure such as roads and bridges, which is contrary to the industrial trend. Therefore, the plan plays a short-term "repair" role in the American economy rather than a long-term "promotion" role. According to Wharton Business School, compared with the benchmark, Biden’s infrastructure investment will only increase the capital accumulation and output efficiency (reflected by hourly wages or working hours) in the United States by 0.1% in the next 10 years, and the pulling effect on total output is almost negligible.

　　Follow-up attention to the "infrastructure plan" in the broader sense of the United States, especially around scientific and technological innovation, advanced manufacturing, new energy and other inputs.Therefore, in this section, we will make a concrete analysis of how Biden and the Democratic Party will put more emphasis on scientific and technological innovation, high-end manufacturing and social care investment and tax increase.

　　The negotiation between the two parties on narrow infrastructure investment is extremely bumpy, and there is still uncertainty in the future.Since Biden put forward the infrastructure investment bill, the Republican Party has expressed clear and strong opposition to the investment expenditure of the plan (especially the tax increase and humanistic care). Although with Biden’s continuous concessions, the two parties have reached an initial agreement on the narrow infrastructure investment of $1.2 trillion in eight years, the Republican Party is still likely to "change its mind" in the future for fear that the Democratic Party will blackmail the Republican Party into agreeing to the broad infrastructure and tax increase plan. For example, recently, 11 Republicans among the 21 senators from both parties who expressed their support for the infrastructure plan have already faced pressure from the party to withdraw from the agreement. LindseyGraham, a Republican who originally expressed his support for the agreement, even angrily tweeted: "If you want to extort money, the agreement will not work!" . In addition, some progressive Democrats are dissatisfied with Biden’s continued compromise with the Republican Party and believe that the Democratic Party should "go it alone". These radical Democrats will also have huge variables about the future of the bill.

　　The ambition of the Democratic Party is not limited to infrastructure investment in a narrow sense. Biden is more concerned about investment in "new infrastructure".Relatively speaking, the narrow sense of infrastructure investment has been the least controversial part between the two parties. In fact, the Republican Party also hopes to modernize the infrastructure facilities in the United States (Republicans in the House of Representatives proposed a $400 billion plan for five years, focusing on the construction of roads, bridges and transportation systems in rural areas). In the "new infrastructure" part where the two parties are slightly different (the Republican Party mainly focuses on the investment in 5G technology and broadband Internet, while the Democratic Party focuses more on the investment in clean energy to launch a clean energy revolution), we can see from the 6.24 version of the investment bill that both the broadband investment favored by the Republican Party and the new energy investment favored by the Democratic Party have shrunk to varying degrees. Therefore, as far as infrastructure is concerned, the content of the bill is still full of variables.

　　It will be more difficult and time-consuming for the two parties to pass through the same negotiation in the parts where there is almost no consensus between the two parties or the Republican Party is firmly opposed (tax increase and social welfare investment, etc.).According to Biden’s campaign platform, he attaches great importance to the investment in social welfare and the promotion of social equity, which is exactly the part that the Republican Party, represented by Trump, opposes (Trump reduced taxes in 2017, reduced the scale of medical insurance, etc.), so it is almost impossible for the measures such as manufacturing investment, social welfare investment and tax increase that were abandoned in the 6.24 version to be passed in a "friendly negotiation" way. Considering that Congress will adjourn for five weeks from August 1st, it is highly unlikely that Biden will implement other spending bills before the new fiscal year (October 1st this year). Therefore, instead of thanklessly negotiating with the Republican Party, the Democratic Party’s best solution is to directly use the budget mediation procedure to force the passage of tax increase, manufacturing investment, social care investment and other bills in the new fiscal year.

　　3. Technological innovation is the future of the United States, but also the future of American stocks.

　　3.1. The core endogenous driving force for the future development of American economy is scientific and technological innovation.

　　From its own point of view, scientific and technological innovation is the core driving force for the future economic development of the United States, and the total factor growth rate will contribute more than half of the economic output growth in the next decade.According to Solow’s growth model, the contribution of innovation (reflected by total factor growth rate) to the output of non-agricultural sectors has increased from 20.6% to 50% since 1970s. According to CBO’s calculation, the contribution of total factor growth rate to economic output is expected to further increase to 52.4% in the next 10 years. In contrast, by 2030, the contribution of labor and capital deepening to output will be reduced by 30% and 2% respectively.

　　In terms of employment, high-tech industries will create more high-paying jobs for the United States.According to a report released by the Information Technology Industry Association of the United States, in 2019, the median annual salary of employees in high-tech industries in 50 States in the United States was as high as 78,941 dollars, which was more than double the median per capita income (35,597 dollars), including California and other places. The annual salary is more than 150,000 dollars. However, the proportion of employees in the technology industry is only about 5.6% of the total labor force, which does not match the leading position of the technology industry in the economy. In the future, the development of the technology industry in the United States will create more technology jobs and enable more American residents to obtain high-income jobs.

　　3.2. Under the background of great power game, scientific and technological innovation is the main battlefield for the United States to enhance its competitiveness.

　　From the perspective of big country game, because the competitive advantage of the United States lies in the cutting-edge technology with deep roots and broad dimensions, it is the key for the United States to compete with China to maintain its dominant position in the high-tech field and make use of its core competitiveness.American R&; D The expenditure exceeds that of any other country, the quality of higher education is outstanding, and it occupies an important position in the high-end scientific and technological industrial chain, and the number of patents is leading in the world, and it is concentrated in high-tech fields such as computers, communication equipment and semiconductors. In addition, the proportion of American technology companies in the economy and stock market is much higher than that of other countries. Maintaining its leading position in the field of science and technology is the key for the United States to compete with the developing China.

　　Therefore, the United States will be targeted, appropriately "abandon" local low-end industries, and further expand the advantages of top-level technology industries.In the high-end manufacturing industry, the United States is at a disadvantage compared with China in new energy-related fields, and Biden’s "preference" for new energy is very likely to follow China’s short-board strategy and give strong support; In other fields, China poses little threat to it, so it can be taken lightly.

• 　　Give up local low-end industries and cultivate China’s competitors in Southeast Asia.

　　We believe that because China is gradually giving up its advantages in labor-intensive industries, the United States will not focus too much on supporting its own low-end manufacturing industry, and it is unnecessary for the United States to develop hand in hand with China in this field. The best solution to restrict China is to support Southeast Asian countries to replace China as the "world factory".

　　Current situation of low-end industries

　　In China, with the rapid development of China’s economy, the transformation of factor endowment structure and the weakening of the return rate of superimposed labor and resource-intensive industries, China’s manufacturing industry has undergone great changes, from traditional low-end manufacturing to high-end technology manufacturing.

　　In Southeast Asia, thanks to sufficient population and labor resources, countries such as Southeast Asia intend to take over the status of "world factory" from China.Southeast Asia is rich in labor resources, and the country strongly encourages the development of low-end manufacturing industries such as textiles. Take India as an example. India’s sufficient population makes it have a cheaper labor force than China’s. After Modi took office, he launched the "Made in India" plan in a high-profile manner and set a goal to increase the proportion of manufacturing to GDP from the current 16% to 25%.

　　In the United States, although the United States has gradually realized that a strong manufacturing industry is the key to accelerating economic growth and innovation, and has recommended a series of measures to achieve the purpose of manufacturing backflow (including measures to promote employment, raise wages, stimulate investment and reduce the trade deficit), various manufacturing enterprises are bound by many factors such as labor costs, environment, policies, production chains, etc., and in fact it is difficult to really set up factories in the United States.In 2019, the American Chamber of Commerce in Shanghai released a report, and only 3.7% of enterprises indicated that they had moved some production links from China to the United States.

　　On the whole, the low-end manufacturing industries in China and the United States are in a downward trend as a whole, and the low-end manufacturing industries in India and Vietnam, which represent Southeast Asia, have gradually increased their voice in the world, and this trend will continue in the future.

　　Low-end industrial policy

　　The United States has obviously relocated some low-end processing industries from China to Vietnam and India.For example, more than 50% of the output of international famous brands such as Adi and Nike come from Viet Nam, while the output of China is only 28%. The previous boycott of Xinjiang cotton was also aimed at allowing India (one of the three major cotton producing areas in the world) to further erode China’s share.

• 　　Consolidate the advantages of high-end manufacturing industry and strive to make up for the gap in China’s new energy field.

　　For high-end manufacturing related to non-new energy, although the United States is still in the leading position in the world, its advantages over other countries and regions such as Japan, Germany and even China are not obvious enough.However, considering that in the fields of chemical industry, machinery and automobile, the gap with the United States is mainly the western developed countries, that is to say, the threat of China enterprises to the United States and its allies is still small, so the United States can appropriately "treat it lightly" in high-end manufacturing.

　　Present situation of high-end manufacturing industry

　　In terms of sales volume, the United States, Japan, Germany and other established automobile manufacturing countries are still in a relatively advantageous position.On the national dimension, in 2019, the top3 global automobile exports were Germany, Japan and the United States, with export shares of 18.8%, 12.9% and 7.4%, totaling 39.1%, of which China ranked lower, accounting for only 0.41%. In terms of enterprise dimension, according to the ranking of car companies published by Brand Finance in the UK in 2019, German Volkswagen, Daimler and BMW ranked 1st, 2nd and 4th, American GM and Ford ranked 6th and 7th, and China car companies ranked 9th only with Geely, and the rest were mostly established car manufacturing countries.

　　From the technical point of view, China’s auto parts manufacturing is still far behind the United States, Japan, South Korea and other countries.Due to various factors, such as short development history, large gap between core technologies and standards (processing technology, dimensional tolerance, assembly technology), there is still a big gap between China internal combustion engine and the three major countries of traditional automobiles. In terms of auto parts, established auto manufacturing powers have strong competitive advantages with years of technology accumulation. Several large auto parts manufacturers can produce almost all kinds of auto parts, such as Bosch (Germany), ZF (Germany), Denso (Japan), etc. No enterprise in China can diversify its products, and even some fields are still blank (such as sensors).

　　Since the excavator entered the era of hydraulic technology in the 1980s, the construction machinery industry has formed a leading pattern dominated by the United States and Japan.In age of steam in 1890s, American Caterpillar developed the first steam bulldozer for agriculture. Later, by taking the lead in developing various diesel bulldozers, graders, graders and other equipment, and cooperating with the US military, Caterpillar quickly occupied the market, and began to deploy overseas business after 1950, becoming the world leader in construction machinery. Japan quickly repaired various economic industries after World War II. In 1963, Komatsu cooperated with Biselos, and Komatsu took the lead in hydraulic technology. In the 1980s, under the background of the depreciation of the yen, Komatsu began to accelerate the export expansion, which seriously threatened Carter in the global market. Since then, the construction machinery industry has basically laid a bipolar pattern between the United States and Japan. The United States is headed by Caterpillar and John Deere, while Japan is headed by Komatsu and Hitachi Construction Machinery. Up to now, the US-Japan pattern is still established, and it has an absolute share advantage in the global market. According to the statistics of KHL Group of the United Kingdom, in 2020, only Caterpillar and Komatsu will occupy 27.7% of the world market share (the top two and the third John Deere will occupy 5.5%); Among the top 20 companies, American and Japanese companies accounted for 44.8%, while China only accounted for 15.4%.

　　Thanks to the accumulation of technology, American machinery exports still have an absolute advantage, while China is still limited in product richness.As for construction machinery, due to the technical accumulation of the United States and Japan for many years and the long-term strategic cooperation, the main products exported by China at present are only parts with low technical content (37.47%), and the loaders are excavators (9.17%), loaders (6.97%) and forklifts (9.31%). Among them, excavators are mainly small and medium-sized excavators with low technical barriers. In terms of precision machinery, in 2019, lathe exports to Germany and Japan accounted for the top two, with exports of 9.19 billion dollars and 7.94 billion dollars respectively, and China ranked third with only 4.42 billion dollars. Among the top ten exporting countries, developed countries such as Europe, America, Japan and South Korea have absolute advantages in market share (80.35%). In terms of high-end machine tools, the data released by CCID Consulting in 2019 shows that the global TOP10 CNC machine tool enterprises belong to the US, Japan and Germany.

　　There is a big gap between Chinese and American chemical industries in R&D investment.According to the data of the fourth economic census, the total R&D investment of chemical enterprises above designated size in China in 2018 was 89.99 billion yuan, and the ratio of R&D expenditure to operating income was 1.28%, while the R&D investment of basic and special chemical enterprises in the United States was generally 2% ~ 3% of their sales.

　　The pattern of world chemical industry is diversified, but the structure is still dominated by developed countries.According to the latest list of the top50 global chemical enterprises published by Chemistry and Engineering News in 2020, BASF (Germany), Sinopec (China) and Dow (USA) respectively account for the top three in the list, accounting for 7.76%, 7.20% and 5.03% of the total sales of TOP 50 respectively. Among the top 50 enterprises, 40 belong to developed countries (9 in the United States account for 17% of sales; 6 in Germany, accounting for 16.3%; 8 in Japan, accounting for 12.9%),

　　Only four enterprises belong to Chinese mainland, with a market share of 12.4%.

　　For high-end manufacturing related to new energy, there is a gap between the United States and China in terms of technology and commerce, and even the gap between American allies (Japan, South Korea, etc.) and China continues to widen.Considering Biden’s preference for new energy sources and the United States’ desire to achieve carbon neutrality by 2050, from the perspective of recent policies, we believe that the United States will follow China’s short-board strategy and increase policy support for new energy manufacturing.

　　Present situation of new energy industry

　　From the perspective of installed capacity, the installed capacity of photovoltaic in the United States is less than 1/3 of that in China.By 2019, the cumulative (newly added) installed photovoltaic capacity in China accounted for 35.5% (30.8%) of the global total, while the share in the United States was 10.5% (9.34%).

　　From the company’s point of view, China’s photovoltaic enterprises have obvious advantages over the leading enterprises in the United States.According to the list of "Top 20 Global Photovoltaic Enterprises in 2020" released by 365 Photovoltaic, China enterprises have occupied the top five in the list for two consecutive years, among which Longji Green Energy Technology Co., Ltd. topped the list with revenue of US$ 4,716 million, while American enterprises ranked only 6th, 12th and 15th.

　　China enterprises are the absolute kings of lithium battery market.The global lithium-ion battery industry is mainly concentrated in China, Japan and South Korea. Since 2015, driven by China’s vigorous development of new energy vehicles, the scale of lithium-ion battery industry in China has started to grow rapidly, and it has surpassed South Korea and Japan to rank first in the world in 2015. According to the data of South Korea’s SNEResearch, by 2019, China has occupied five seats among the top ten power battery manufacturers in the world, accounting for over 45% of the sales volume, far exceeding the leading enterprises in Japan and South Korea, not to mention American enterprises.

　　New energy industry policy

　　The U.S. government has a firm attitude to support the new energy industry. For example, the recent Clean Energy Act of the United States has given unprecedented subsidies to new energy.On May 26th, the Finance Committee of the United States Senate passed the proposal of the Clean Energy Act of the United States (hereinafter referred to as the proposal), which plans to provide a tax credit of $31.6 billion for electric vehicle consumption, and raise the upper limit of the tax credit to $12,500 per vehicle for qualified vehicles. At the same time, it will relax the limit of 200,000 vehicles that automakers can enjoy tax relief, and will provide 100 billion US dollars in purchase subsidies. The proposal says that the tax credit will only decline within three years after the penetration rate of new energy vehicles reaches 50%, while the penetration rate of electric vehicles in the United States is less than 4% at present, so the stimulus intensity and duration of this round exceed market expectations.

• 　　Expand the position of top technology industry in leading technology.

　　On the whole, the global leading position of the United States in the top technology industry is still very stable.Compared with other countries and regions, especially China, the leading advantages of technology and commerce are remarkable. From the recent American Innovation and Competition Act of 2021, it can be seen that the United States is bound to keep and even expand this advantage as its primary task in the future.

　　Current situation of top technology industry

　　With a long history of experience in semiconductor field and increasing R&D expenditure, American semiconductor technology has always been in the first echelon.Microelectronics technology, which emerged in the United States in the 1960s, laid a profound historical foundation for the semiconductor industry in the United States. Not only that, by 2019, the R&; D The ratio of input to sales is 16.4%, which is significantly higher than other countries and regions in the world. Leading global R&D investment has maintained the technological advantage of the United States. For example, in May this year, IBM announced the development of the world’s first 2nm chip technology. Compared with China, as far as semiconductor foundry technology is concerned, the international technology of SMIC, the most advanced enterprise in China, is mainly 14nm, while that in the United States is mainly 5nm or 7nm. According to SIA calculation, the chip technology in the United States is at least 4 years or more ahead of China.

　　World-leading technology makes American semiconductor enterprises dominate the world.In terms of market share, American semiconductor companies accounted for 47% in 2019, higher than South Korea (19%), Japan (10%), Europe (10%), Taiwan Province (6%) and China (5%), among which the market share of the United States in computing (such as computer chips) and connection (such as sensors) semiconductors with the highest technical content is more than 6%. From the perspective of top enterprises, according to Gartner’s statistics, the United States has six seats among the top ten semiconductor enterprises in the world, including Intel, which has dominated the desktop terminal CPU industry for many years, and Qualcomm, which has the highest market share in the mobile chip field.

　　The overall technology of American AI industry is in the leading position in the world.Specifically, the United States has a wider and more sophisticated technology layout, and the layout of the basic layer and the technical layer is ahead of China, such as the industry-leading NVIDIA GPU and Google TPU on the chip; In addition to Baidu’s flying paddle, other mainstream deep learning open source frameworks are from the United States. In terms of the overall strength of technology reserve, there is a wide gap between China and the United States. American manufacturers are more keen on the fields of machine learning, speech recognition and synthesis processing, while China manufacturers are more inclined to the fields of payment, interactive technology, video image information processing, intelligent search, etc. Both of them focus on unmanned driving, data text clustering and other fields. In terms of talent pool, it is difficult for China to compete with the United States at present. In terms of human resources, among the authors of the AI Summit in 2019, 44% graduated from the United States, which is four times that of China, while American manufacturers have an AI talent pool nearly five times that of China.

　　The number of artificial intelligence enterprises in the United States occupies a great advantage on a global scale.As of the first quarter of 2019, there were 2,169 artificial intelligence enterprises in the United States, accounting for more than 40% of all registered AI enterprises in the world, ranking first in the world. China’s artificial intelligence industry started later than the United States, but it has developed rapidly under the impetus of all sectors of society. During the artificial intelligence entrepreneurial tide from 2014 to 2016, there were many new enterprises. By 2019, the number of artificial intelligence enterprises accounted for 22% of the global total.

　　Top technology industry policy

　　According to the Made in China 2025 plan, the American Innovation and Competition Act of 2021 has obvious intention to ensure the United States’ leading position in advanced technology.On June 8, the US Senate passed the American Innovation and Competition Act of 2021 (hereinafter referred to as the Act) to enhance the basic and advanced technical strength of the United States in key technical fields and increase the production of semiconductors, microchips and telecommunications equipment. The proposal involved an amount of 250 billion US dollars, which was the largest investment in scientific research in the United States for decades. Biden praised the bill: "We are in a competition for victory in the 21st century, and the starting gun has already sounded … We can’t risk falling behind." From this, we can see that the bill is to maintain the competitive advantage of the United States in the field of science and technology.

　　The top two expenditures of the American Innovation and Competition Act of 2021 are the appropriation for the National Science Foundation (84 billion) and the improvement of semiconductor productivity (54 billion), from which it can be seen that the United States believes that high-tech technologies such as AI, biotechnology, semiconductors and 5G communication technologies are the most necessary areas to enhance their advantages.Specifically, the government allocated $81 billion to the National Science Foundation and set up a Technology Innovation Bureau within the National Science Foundation, of which $29 billion will be allocated to the Technology Innovation Bureau in the next five years to set up 10 key R&D fields, including artificial intelligence, robotics and biotechnology. The bill separately allocated a total budget of 54 billion US dollars in the next five years, including nearly 39 billion US dollars to be used for incentives for semiconductor manufacturing and R&D, 10.5 billion US dollars to be used for implementation, including the National Semiconductor Technology Center of the United States, and 1.5 billion US dollars for emergency funds to help replace the equipment of China communication equipment providers Huawei and ZTE, and accelerate the development of 5G Open RAN architecture led by American manufacturers.

　　3.3. Conforming to the industrial trend is the key to gain excess returns: technology stocks dominate.

　　In the long run, historical experience shows that industrial trends are the key to determine the rotation of industries and styles. Whether it is Roosevelt’s New Deal or the information superhighway plan, it shows that only when the infrastructure investment plan matches the economic development trend can it become a catalyst for related industries.However, when the industrial trend is inconsistent with the stimulus plan, the contribution of the investment plan to the corresponding industries will be weakened, such as the Federal Highway Aid Act and the ARRA Act.

　　In view of the fact that the market has basically made price in Biden’s infrastructure investment plan and started style switching ahead of schedule, there is limited room for cyclical stocks to follow up.Therefore, we need to find the leading industries (science and technology and growth) that will drive the development of American economy in the future, because this is the direction in which we can obtain stable excess returns. In fact, since June, the style that cycle is king has been reversed, and the relative value of growth and the relative cycle of science and technology have regained obvious excess returns.

　　Risk warning

　　The friction between China and the United States escalated, the policy fell short of expectations, and the yield of US bonds rose more than expected.