Trump's 2026 agenda includes a capex boom and IPO surge

Key Concepts

• Cap-X Boom: Capital expenditure boom, referring to increased investment in physical assets and infrastructure.
• AI (Artificial Intelligence): A rapidly advancing field driving significant investment and technological development.
• Quantum Computing: A more advanced form of computing that is expected to surpass current AI capabilities.
• Deregulatory Aspects: Policies aimed at reducing government regulations, potentially stimulating market activity.
• IPO (Initial Public Offering): The process by which a private company becomes public by selling shares on a stock exchange.
• PE (Price-to-Earnings Ratio): A valuation metric used to compare a company's share price to its earnings per share.
• Dividend Yields: The annual dividend payment divided by the stock's price, indicating the income an investor receives.
• Mag 7: A group of seven large-cap technology stocks that have significantly driven market performance.
• S&P 500: A stock market index representing the performance of 500 of the largest publicly traded companies in the United States.
• Quality Weighted: An investment strategy that weights assets based on their quality rather than market capitalization.
• Leverage Risks: Risks associated with using borrowed money to increase potential returns, which can also amplify losses.
• Crypto (Cryptocurrency): Digital or virtual currencies that use cryptography for security.

Economic Outlook and Investment Opportunities for 2026

The discussion centers on the economic outlook for 2026, with a strong emphasis on the transition from planning to implementation of various economic drivers. Chief Investment Strategist David Waddell, in conversation with Lauren, highlights a positive economic trajectory, echoing sentiments from Treasury Secretary Scott Bessent.

The Cap-X Boom and AI Investment

A significant driver of the projected economic growth is a "Cap-X boom," specifically within the Artificial Intelligence (AI) sector.

• AI Cap-X Growth: Investment in AI capital expenditures is anticipated to increase by approximately 30% in 2026.
• GDP Impact: This substantial increase in Cap-X is expected to provide considerable stimulus, potentially adding another 1% to GDP growth.
• Real-World Application: This boom signifies a tangible shift towards increased investment in the infrastructure and tools necessary for AI development and deployment.

Fiscal Stimulus and Monetary Policy

Beyond AI, other factors are expected to contribute to economic expansion:

• Fiscal Stimulus: The passage of a significant legislative bill by a former administration is projected to add between 0.5% and 1% to GDP growth.
• Interest Rate Cuts: The expectation of four interest rate cuts, driven by a desire for monetary easing, is also a key component of the bullish outlook. Waddell notes that the appointment of the Federal Reserve Chair is a factor to consider in this regard, with Polymarket data suggesting a particular candidate at the moment.

Deregulation and Capital Markets

The conversation also touches upon the impact of deregulation on capital markets:

• Regulatory Morass: The current regulatory environment is described as a "regulatory morass," which has made public markets less attractive compared to private markets.
• IPO Market: This has led to a decline in IPO traffic, with current levels lower than pre-COVID. Investment banks have profited significantly from private market activities.
• Swing Back: There is an expectation of a swing back towards public markets, especially with the excitement surrounding AI. A "big bang IPO" is anticipated, potentially from entities like OpenAI.
• Market Sentiment: Waddell asserts that the current market sentiment does not indicate an end, but rather a beginning, suggesting further growth potential.

The Rise of Quantum Computing and its Implications

A counterpoint is raised regarding the rapid advancement of AI, with a concern that quantum computing might soon surpass AI's capabilities. Waddell acknowledges this, but the immediate focus remains on the current AI-driven opportunities.

Investment Strategy: "Owning Trump Things"

Waddell advises investors to "own Trump things," which he clarifies refers to sectors that align with a potential Trump agenda:

• Target Sectors: These include industrials, financials, and materials.
• Supply Chain Focus: The strategy emphasizes owning companies that supply the suppliers of AI. This includes:
  • Copper: Essential for electrical infrastructure and AI hardware.
  • Steel: Used in construction and manufacturing of AI-related facilities.
  • Plastics: Utilized in electronic components and packaging.
  • Cement: For building data centers and manufacturing plants.
• Valuation Advantage: These sectors are seen as offering attractive investment opportunities with healthy dividend yields and lower PEs compared to high-flying tech stocks.

Performance of Different Asset Classes

The discussion provides data on recent market performance:

• Mag 7 Dominance: The "Mag 7" stocks accounted for 50% of earnings and total return in the current year.
• Outperformance: Only two of the Mag 7 stocks outperformed the S&P 500.
• Commodity Outperformance: Copper miners, for instance, outperformed the S&P 500 by 70%.
• Broader Market Opportunities: Waddell highlights that there is significant value "under the surface of AI" in other areas:
  • Emerging Markets
  • International Developed Markets
  • Mid Caps
  • Small Caps
• Quality Weighted Strategy: A quality-weighted approach across these segments, even at a 35% discount, has outperformed the S&P 500.

Market Projections and Investor Advice

• Commodity Prices: Despite some metals being at or near record highs, Waddell believes they will continue to rise.
• S&P 500 Target: He projects the S&P 500 to reach 7,000 within the current year.
• Record Margins and Net Worth: Current economic conditions are characterized by record-high margins and a 50% increase in net worth since COVID.
• "Salad Days": Waddell describes the current economic climate as "salad days," encouraging investors to participate.
• Rotation Strategy: He advises against chasing past winners and suggests rotating into other, cheaper opportunities that offer dividends.
• Leverage Risk Avoidance: Investors are cautioned to stay away from leverage risks.

Crypto as a Leverage Thermometer

• Correlation: Cryptocurrency is described as a "leverage thermometer," with its movements often correlating with broader liquidity and risk appetite. The recent decline in the Yen and subsequent rise in crypto is cited as an example.
• Liquidity Impact: Government shutdowns are noted for their potential to drain liquidity from the financial system.