The One Big Beautiful Bill Act ("OBBBA") lives up to at least half its name...
President Donald Trump signed this piece of legislation into law back in July. At 870 pages long, it's certainly "big."
Whether it's "beautiful" or not depends entirely on where you sit.
Defense and border security industries have reason to celebrate. Defense gets $150 billion, and border security gets $170 billion in new spending.
But the health care industry is a different story. The OBBBA includes $1.2 trillion in Medicaid spending reductions.
However, these spending shifts tell only part of the story...
For U.S. manufacturers and companies betting on onshoring, the OBBBA is a huge bonanza.
Recently, I caught up with my colleague Pete Carmasino at the Stansberry Research Conference in Las Vegas.
If you've followed Pete's work here at Chaikin Analytics, you know he has been paying particular attention to the OBBBA. And he thinks many investors are missing the forest for the trees...
As Pete says, these folks are focusing on the headline spending numbers. But they're overlooking the OBBBA's powerful incentives for companies bringing production back to the U.S.
Pete thinks there will be substantial opportunities in companies that will benefit from the OBBBA's onshoring investment incentives.
He sees an upfront boost to GDP growth from spending resulting from the incentives in the bill.
Tax reductions free up capital for expansion, hiring, and new projects. This creates a "multiplier effect" that Pete thinks could boost GDP growth by 3% to 5% over time.
Pete also sees another leg of growth coming from the build-out in AI infrastructure. In the first half of 2025, AI spending already added 1.1% to GDP growth.
For investors, the question isn't whether this manufacturing renaissance will happen. It's which companies will capture the value.
And the answer goes beyond AI, defense, and homeland security...
A Manufacturing 'Reshoring'
Within the OBBBA, three big tax incentives are aimed at domestic investment...
The first is a permanent 100% bonus depreciation for qualified machinery and equipment.
Instead of spreading the tax write-off for new equipment over several years, companies can now deduct the full cost immediately in year one.
Any company planning major equipment purchases gets an immediate tax benefit that lowers the after-tax cost of investing in American production capacity.
The second incentive is an immediate expensing of domestic research and development (R&D) expenditures. This particularly benefits R&D-intensive sectors like technology, health care, and defense.
Companies can now deduct the full cost of domestic R&D spending immediately instead of spreading it out over five or more years.
This is especially valuable for high-growth companies investing aggressively in innovation. They can get immediate tax relief. And this frees up cash for even more R&D.
The third incentive is a permanent extension of the 20% pass-through deduction for companies structured as LLCs, S-corps, partnerships, or sole proprietorships.
So if your pass-through business earns $500,000 in qualified income, you only pay personal income tax on $400,000.
This is particularly valuable for profitable businesses that reinvest earnings back into growth. It effectively lowers their tax rate and leaves more capital in the business.
And the OBBBA is already having some tangible benefits...
For example, pharma giant Johnson & Johnson (JNJ) announced that it will invest more than $55 billion in the U.S. over the next four years. The company plans to invest in everything from manufacturing to R&D and technology.
But more importantly, it's a 25% increase over what Johnson & Johnson spent in the past four years.
Additionally, fellow pharma giant Eli Lilly (LLY) says it will build a $6.5 billion factory in Texas to make drug ingredients. The company has also announced that it will build a $5 billion facility for cutting-edge medicines in Virginia.
By building these facilities, Lilly will reduce its reliance on overseas production.
Meanwhile, Hitachi Energy says it will invest $1 billion in factories to make critical electrical grid infrastructure in the U.S.
A big part of that is a $457 million new plant in Virginia that will create more than 825 jobs.
Put simply, a lot of money is involved with all the reshoring.
So where do we look for investments to take advantage of this?
Finding Opportunities With U.S. Manufacturing
The obvious place to find individual names is in the industrials sector. And the main proxy for that is the Industrial Select Sector SPDR Fund (XLI)...
Right now, the Power Gauge gives XLI a "neutral" rating. But within the fund, our system rates 21 holdings as "bullish" or better. So the Power Gauge is giving us some great opportunities to consider.
Another way is to look at exchange-traded funds ("ETFs") focused on building and construction or the onshoring theme. These include...
- The Global X U.S. Infrastructure Development Fund (PAVE), with about $9.6 billion in assets under management ("AUM")
- The First Trust RBA American Industrial Renaissance Fund (AIRR), with roughly $6.1 billion in AUM
- The Tema American Reshoring Fund (RSHO), with about $176 million in AUM
- The iShares U.S. Manufacturing Fund (MADE), with more than around $26 million in AUM
- The TCW Transform Supply Chain Fund (SUPP), with nearly $11 million in AUM
Right now, the Power Gauge rates four of these as "bullish." And the other one is unrated.
So it's easy to see that the Power Gauge likes the reshoring trend, too.
Combined with tariffs, the OBBBA has brought global supply chains to a tipping point. Companies that rely on overseas manufacturing to maintain margins now face shrinking profits, longer lead times, and greater risk.
The OBBBA is aimed at making American manufacturing competitive again. So as investors, we want to be positioned alongside the companies that will profit most from building that manufacturing.
Good investing,
Joe Austin
