In this hyper-partisan era, the U.S. Congress has more closely resembled the food fight in Animal House than a distinguished forum. (The movie did warn us that Bluto becomes a Senator.)

However, last week President Biden performed a political miracle, by enticing 11 Republican Senators to support a scaled down, $1.2 trillion version of his infrastructure spending package.

As of this writing on Monday, Biden’s “Build Back Better” plan is on a clear path to passage in the 50-50 Senate. Passing the Democratic-dominated House is a slam-dunk. The art of political compromise isn’t dead, after all. Meanwhile in recent days, the CBOE Volatility Index (VIX) and bond yields have been falling.

The upshot: Stocks are about to receive a major catalyst, in the form of fiscal stimulus, for their next upward surge.

Read This Story: Get Ready for the Great Building Boom of 2021

Since the bipartisan infrastructure deal was struck on June 23, a bevy of infrastructure-related stocks have outperformed the market. These building and construction sector stalwarts should continue their rally in the coming months. At the same time, the economic recovery has been picking up steam and jobless claims continue to fall.

Fear vs. reality…

Judging by reader emails that land in my inbox, some of you are worried that the economy is in terrible shape and the financial markets are teetering on collapse. None of that is true.

Don’t get spooked by the partisan blowhards on cable television, who selectively hype negative news. If you look at the hard data with an objective eye, it’s awfully hard not to be bullish.

The June preliminary Purchasing Managers’ Index (PMI) for the U.S. showed that output across the private sector expanded at a historically high rate. A leading indicator, the PMI came in at 62.6 vs. 61.5 expected. The rise in new orders was significant among manufacturers and service providers alike.

Stocks last week erased their losses from the previous week, with the S&P 500 and tech-heavy NASDAQ hitting new record highs (see table).

The S&P 500 posted its best week since February and the Dow snapped its two-week losing streak. Value stocks continued to outperform growth last week, largely because the earnings of value stocks tend to get a bigger kick from economic expansion than growth stocks. In pre-market futures trading Monday, stocks were little changed as investors await forthcoming data this week on jobs and consumer confidence.

Cyclicals are the place to be…

There’s good news on the earnings front as well. According to the latest numbers (as of June 25) from research firm FactSet, 103 S&P 500 companies have issued earnings per share (EPS) guidance for second quarter 2021. This number is above the five-year average of 100.

Among these 103 companies, 37 have issued negative EPS guidance for Q2 and 66 have issued positive EPS guidance. The number of companies issuing negative EPS guidance is well below the five-year average of 63, while the number of companies issuing positive EPS guidance is well above the five-year average of 37 (see chart).

Also cheering Wall Street is the passing grade that all 23 large banks received last week from the Federal Reserve’s annual stress test, which clears the way for removing COVID-induced restrictions on share buybacks and dividends.

Read This Story: Fed Tapering: Nothing to Fear…Yet

This tangible sign of strength in the banking system will shore up bullish sentiment towards the financials sector, which is up 24% year-to-date and the second-best performer this year after energy. Cyclical stocks are you best bet right now, as the pace of COVID vaccinations accelerate and another round of stimulus in the form of infrastructure spending appears imminent.

PS: The tech-dominated NASDAQ Composite hovers at a record high. Some technology stocks are great buys now. But many others aren’t. In fact, several “story stocks” in the tech sector are overbought and poised for a tumble.

My colleague Jim Pearce, chief investment strategist of Mayhem Trader, has pinpointed the most vulnerable stocks in the tech sector. A shrewd veteran of Wall Street, Jim has devised an ingenious yet simple way to leverage the imminent day of reckoning for these much-hyped stocks. Want to learn about Jim’s next “mayhem” trades? Click here for details.

John Persinos is the editorial director of Investing Daily. Send questions and comments to: mailbag@investingdaily.com. To subscribe to his video channel, follow this link.