3 Things Investors Need To Know About The $4 Trillion Infrastructure Plan: Part 2 Today's Part 2 of 3 article features the SPY & reveals "3 Things Investors Need To Know About The $4 Trillion Infrastructure Plan." Read on to find ou...

Here in part 2, we'll examine what this potentially stronger economic growth means for corporate earnings and the stock market.

Fact 3: How $4 Trillion In Infrastructure Could Boost Corporate Profits And The Stock Market

In the long run...each 1% move in U.S. GDP growth should translate into roughly 3% to 4% growth in the earnings of S&P 500 companies." - Bank of America

According to Bank of America's economists (also part of the blue-chip consensus), 1% faster GDP growth translates into about 3.5% faster corporate earnings growth over time.

Today the bottom-up consensus long-term EPS growth forecast from FactSet is 8.5% CAGR. Historically, analysts tend to overestimate by 2% to 3%, and adjusting for the historical probability of recession (14%) that would be 6.4%.

(Source: FAST Graphs, FactSet Research)

Including the pandemic and post-pandemic recovery, earnings have grown at 8.5% CAGR for the last four years, and that's what analysts expect to continue.

If the economy were growing 1% faster, as Moody's expects if the $4 trillion infrastructure bills pass, then earnings growth could potentially jump to 11.5% to 12.5% CAGR through 2031.

That could have massive implications for your portfolio.

Why Infrastructure Could Be A Game Changer For The Stock Market And Your Portfolio

For context, here's the return potential of the 29% overvalued S&P 500.

S&P 500 2023 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

S&P 500 2026 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

But here's what happens if 1% faster GDP growth drives 3% to 4% faster EPS growth.

S&P 500 2026 Consensus Total Return Potential (3% Faster Growth)

(Source: FAST Graphs, FactSet Research)

S&P 500 2026 Consensus Total Return Potential (4% Faster Growth)

(Source: FAST Graphs, FactSet Research)

7% to 8% annual returns is basically is what the market has historically delivered, and despite the market being 29% overvalued, it could deliver historical returns if the $4 trillion infrastructure bills live up to Moody's expectations.

But wait it gets better!

The average market pullback is 7% and the average correction is 14%.

We're now historically overdue for a pullback, and Bank of America expects a correction this year due to high market valuations.

So let's take a look at what happens to expected 5-year total returns for stocks after both a historically average pullback, and correction, if the economy is growing 1% faster and corporate earnings 3% to 4% faster.

S&P 500 2026 Consensus Total Return Potential (3% Faster Growth And a 7% Pullback)

(Source: FAST Graphs, FactSet Research)

S&P 500 2026 Consensus Total Return Potential (3% Faster Growth And a 7% Pullback)

(Source: FAST Graphs, FactSet Research)

A historically normal pullback or correction, combined with 1% faster economic growth could help the market deliver historically normal and attractive returns over the next five years.

And if the market returns to fair value? That requires a 21% bear market, such as we saw in 1990.

What would the market's returns look like if the $4 trillion infrastructure boosts GDP growth by 1% over the next decade?

2% yield + 11.5% to 12.5% EPS growth = 13.5% to 14.5% CAGR.

In other words, $4 trillion in infrastructure spending could not only minimize the chances of a severe bear market this decade, but it could help fuel an epic 20-year bull market that allows the market to rise 500% or 6X from the March 2009 lows.

But while that's great news for index investors, what if you're looking for individual stocks to profit from the potential $4 trillion infrastructure gold rush?

In parts three and four of this series, coming next week, we'll look at some blue-chip bargains that could soar if infrastructure passes, and could help you achieve returns strong enough to deliver the rich retirement you deserve.