Right before Christmas, the U.S. government approved a massive $1.7 trillion funding package.
It was a monster 4,155-page mega-document. And it had concessions and earmarks galore.
In other words, just a typical day in Washington D.C.
Since I quit Wall Street 20 years ago, I’ve spent a lot of time on Capitol Hill speaking with federal officials.
And I can tell you, both Democrats and Republicans make careers out of stuffing massive documents and bills with even more stuffing. But you probably already knew that.
What’s worse, though, is why they often do this. Let me give you a story…
One time, right after the 2016 election, I was talking to a powerful Rust Belt senator about how to keep a tighter lid on Wall Street.
He agreed with everything I said. But at the end, his real priorities came out.
“But tell me,” he said, “which groups or companies are going to be upset with me for going along with this?”
This fear of upsetting donors is common in Washington. And it makes funding legislation much more expensive.
The good news is, if you know where that funding is going, you can position yourself to profit. So today, I’ll uncover some of the clues hidden in that $1.7 trillion monster package.
In a Divided Congress, Pay Attention to Sectors with Support from Both Sides
President Biden signed the new spending bill into law on December 23. And it does a number of things.
First, it unlocks funds set aside for acts the government already agreed upon. That includes funding for last year’s Bipartisan Infrastructure Act and for Industrial Policy laws.
If you’re wondering why funds aren’t unlocked when Acts are passed, I don’t blame you. But trust me, the process of process in D.C. is a well-honed activity.
The package passed also contained a large increase for the Pentagon… As well as for health, education, and other programs over 2022.
About a third of the Republicans in the Senate voted in favor of the package. Most Democrats did too. In the House of Representatives, nine Republicans supported it, and nearly all the Democrats did.
This gap between how the House and Senate voted along party lines could mean one thing. That is, we’ll see more difficulties in passing funding bills in the House in 2023.
We already got a taste of that last week, with all the drama over the House Speaker vote for the new Congress.
But to me, that just means we need to pay attention to areas with more bipartisan support in general. These areas could tell us where the money will flow.
These include funding for domestic materials and mining… New Energy, including nuclear energy pursuits… chip manufacturers… and health technologies.
Clues From the White House for Stock Market Winners and Losers
Along with this monster package, the White House also made a shorter document public. That 158-page document parallels some of the items in the larger one.
It covers the full 2023 national budget. And it contains the expenditures that the government is due to make with the tax money it collects and the money it borrows.
The federal government spent $6.27 trillion during the fiscal year 2022. That spending was equal to 25% of the total gross domestic product (GDP). (GDP represents all the economic activity of the country.)
Certain parts of the budget receive more funding than others, of course. But the key is how contracts and grant money are doled out.
That’s because, whether you believe the government is efficient or inefficient at what it does, Wall Street doesn’t care. Neither does the market.
Where Washington money goes, Wall Street follows. But to know where that government money is going, you need to dig beneath the surface.
Take the U.S. National Defense budget in 2022. This came out to $1.2 trillion, or 13.1% of the overall budget.
That’s less than Social Security ($1.3 trillion, or 14.3% of the overall U.S. budget). And it’s less than Medicare ($1.5 trillion, or 16.4% of the overall budget).
But here’s the catch… The Defense Department doles out more money in federal contracts than any other department.
Think of it this way. If the total U.S. government spending of $6.7 trillion was divided across the entire U.S. population, it would come out to about $20,000 per U.S. citizen.
Of that, 71% was paid on contracts for products and services by the Defense Department. That’s about $398.7 billion total. Or about $1,200 per person.
To put it bluntly, you personally pay companies like Lockheed Martin, Raytheon, and Boeing – the three largest defense contractors.
Oh, and you also essentially wrote a check to companies like China State Shipbuilding and China North Industries Group.
Just Who Benefits the Most From These Contracts?
How does that compare to previous years?
In fiscal year 2021, the U.S. government spent about $637 billion on contracts. (That’s the last fiscal year for which the government has released full data so far.)
But there’s something even more interesting than that… And that is how that money was distributed according to the size of various contractor companies.
Nearly two-thirds of government contract jobs – and money – funnel into companies with more than 1,000 employees. And one-third of it flows into companies with more than 10,000 employees.
In essence, that means most of that funding goes to middle- and large-size companies. That means these companies get regular income from the government.
In times of uncertainty in particular, that gives Wall Street a solid basis for investing along with that government money.
And in tomorrow’s essay, I’ll show you a way you too can follow Washington’s lead.
Regards,
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Nomi Prins
Editor, Inside Wall Street with Nomi Prins
P.S. Our government has already picked the biggest winners and losers of 2023. And if you don’t know what’s really going on in Washington… By the end of the year, you could be the one holding the bag. Fortune even warned its readers to “buckle up for more carnage.” So if you end up getting stuck with the losers… 2023 could be even worse than 2022.
That’s why you’ll want to tune in for a strategy session I’m holding this Thursday, January 12 at 8 p.m. ET. I’m calling it 2023 Government Winners & Losers. And I’ll reveal the winners and losers of a massive $46 trillion shift coming out of Washington. I’ll also show you a little-known strategy that will give you a chance to profit from both winners at the same time. So if you haven’t yet, RSVP with one click right here.