Infrastructure, Defense, and Tax Cuts: How the Big Beautiful Bill Could Reshape the Economy

The Big Beautiful Bill (BBB), recently passed by the Senate, has ignited debates about its potential to fuel economic growth. While the legislation avoids direct stimulus payments to households—a hallmark of past relief bills—its focus on tax cuts, defense spending, and infrastructure could indirectly boost consumer confidence and reshape market dynamics. Here's how investors should parse its implications.

What's in the BBB? No Direct Payments, but Plenty Else

The BBB sidesteps direct payments to individuals, opting instead for structural changes:
- Tax Reforms: Permanently extends Trump-era cuts, including a 20% deduction for pass-through income and full expensing for business investments.
- Defense & Energy: Allocates $29 billion for shipbuilding, $25 billion for missile defense, and $15 billion to modernize nuclear capabilities.
- Infrastructure: $12.5 billion for air traffic control upgrades and $24.6 billion for Coast Guard modernization.
- Industry Support: Expands fossil fuel leasing, reduces coal royalties, and funds rural healthcare.

Indirect Stimulus: Tax Cuts and Defense Spending

While no cash checks for households, the bill's tax provisions could free up capital for businesses and consumers alike. The permanent extension of 100% bonus depreciation, for example, incentivizes companies to invest in equipment, potentially spurring job creation.

Meanwhile, defense spending—a $90 billion slice of the bill—could supercharge sectors like aerospace and manufacturing.

Defense stocks like Lockheed Martin, a major beneficiary of missile and aircraft programs, could outperform if contracts flow.

Energy & Infrastructure: Winners and Losers

The BBB's fossil fuel-friendly stance contrasts sharply with Biden's green agenda. Key provisions include:
- Oil & Gas: Repeals IRA royalty hikes and mandates leasing in ANWR.
- Coal: Cuts royalties to 7% and opens 4M acres for coal mining.
- Nuclear: Funds small modular reactors and nuclear-armed missiles.

This shift could lift stocks in traditional energy (e.g., Devon Energy (DVN), Peabody Energy (BTU)) but hurt renewables. Meanwhile, infrastructure stocks like Caterpillar (CAT) and Bechtel (private but investable via ETFs like XLI) may benefit from spending on ports, air traffic control, and military facilities.

Fossil fuel support could stabilize prices, but long-term risks from climate policy remain.

Consumer Spending: A Mixed Picture

While direct payments are absent, tax cuts for businesses might lower prices or boost wages. However, the bill's Medicaid work requirements (projected to cut coverage for 11.8M people) could hurt low-income households, limiting their spending power.

Investment Takeaways

1. Defense & Aerospace: LMT, Northrop Grumman (NOC), and General Dynamics (GD) are prime picks for defense contractors.
2. Energy Transition: Avoid pure-play renewables; focus on diversified players like Chevron (CVX) or Exxon (XOM).
3. Infrastructure: ETFs like SPDR S&P Construction (KBE) or iShares U.S. Aerospace & Defense (ITA) offer broad exposure.
4. Wait on Consumer Staples: Without direct stimulus, sectors like retail (e.g., Walmart (WMT)) may lag unless broader wage growth materializes.

Risks to Watch

• Debt Ceiling: The BBB's $5T debt limit increase is temporary; another showdown could spook markets.
• Inflation: Defense spending and fossil fuel subsidies might reignite price pressures.
• Geopolitical Risks: Escalating conflicts (e.g., Taiwan, Middle East) could accelerate defense spending but also destabilize markets.

Conclusion

The BBB's absence of direct payments means its economic impact will be subtler than previous bills. However, its focus on tax incentives, defense, and fossil fuels offers clear opportunities for investors in select sectors. While risks loom, the bill's long-term tailwinds for energy and defense could make these areas worth overweighting in portfolios—if you can stomach the volatility.

Stay vigilant, but don't overlook the structural shifts this legislation could unleash.