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We're a team of investment advisers committed to protecting the financial future of our clients.
One of the key takeaways from the most recent round of quarterly earnings reports from the AI boom companies was the increased projection on future capex spending. Viewpoints certainly differed across the analyst spectrum on whether this increased spending guidance could be seen as bullish given the increased demand, while others were more skeptical and concerned about the reduction in free cash flow for these companies. One thing that is non-debatable is that AI infrastructure spending is leading the way globally in where future dollars are expected to be spent. As the chart below from PIMCO funds illustrates, the buildout of AI infrastructure, combined with rising defense spending and energy security investments, could add roughly $14 trillion to global capital spending over the next five years.
That spending is approximately 1/8th of the entire global GDP. Certainly significant! The buildout of data centers, processing capacity, and power infrastructure is not only reshaping corporate balance sheets, but also is bleeding into multiple sectors, not just technology. As the events in the middle east have once again proven, the chokehold on oil has had ripple effects across the global economy. Geopolitical risk will increasingly play a role in the AI boom, as energy security is now inseparable from its impact on energy-intensive technologies such as AI. We talk often about “what inning” this is for the AI boom. Taking that analogy from a slightly different angle, as this chart and many others highlight, regardless of the inning, we are most certainly in the “spending big money on our roster” portion of this economic cycle. It seems everyone in the league is spending big but determining what “teams” can build the best roster will continue to be our goal.
“This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.
Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”
Yesterday, the S&P 500 reached a new all-time closing high of 7,736.52, marking its first close above the 7,700 threshold. This week’s rally has been fueled by strong corporate earnings, a sharp rebound in artificial intelligence stocks, and easing oil prices. The chart below, from Charlie Biello of Creative Planning, shows the S&P 500’s historical high-water marks in 100-point increments, dating back to its first move above 1,000 in February 1998.
Record highs can often act as a catalyst as some sort of psychological breakout. Crossing milestones can shift investor psychology from risk aversion to fear of missing out. Consistent all-time highs typically coincide with strong economic cycles, robust corporate cash flows, or revolutionary technological expansions. That environment is prevalent in many ways today.
Notably on the chart is the record drought from Marcy 2000 through May 2013, when it took the S&P 500 4,790 days to break thru the 1,600-point barrier. That period was the double whammy of the Dot Com bubble bursting and a global financial crisis. The next longest drought was 757 days December 2021 through January 2024.
All in all, the S&P has been in a prolonged bullish cycle since eclipsing 4,900 in January 2024. Given all the major catalysts currently – the AI investment boom, corporate earnings resilience, and macroeconomic tailwinds – we see now reason we won’t see some more 100-point level breakthroughs soon. Will we crest 8,000 in 2026? Something to watch between now and the end of the year.
“This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.
Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”
For many Americans, taking a summer vacation is a rite of passage. Whether you head to the beach or the mountains, or anywhere in between, most of us enjoy taking time away from our busy lives to reset and reconnect with family and friends. When it comes to consumer discretionary spending, traditionally vacation spending is one of the largest expenses. As such, travel trends can provide insight into the overall health of the economy. As the chart below from AO Wealth shows, overall spending on travel is growing steadily and not exhibiting any weakness that might be an early warning sign for the broader economy.
However, the period following the midterm election has historically been much stronger. Year three of the presidential cycle has generated an average return of 14.7%, the highest of the four years shown. One possible explanation is that election-related uncertainty begins to fade, while elected officials may focus on policies intended to support economic growth ahead of the next presidential election. Historically, it really doesn’t matter how the midterm election goes - Democratic sweep, Republican sweep, split Congress. Regardless of the outcome, the following year the S&P 500 returns, on average, anywhere between 10% and 15% and is positive roughly 88% of the time according to Sofi. The broader lesson is not that investors should attempt to time the market around elections. Although historical patterns can provide useful context, each market cycle is shaped by different economic conditions, including inflation, interest rates, corporate earnings, and geopolitical events.
“This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.
Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”
