The American Spending Boom, the Great Rotation, and What the Iran Conflict Means for Your Portfolio
TL;DR
- The U.S. is in the middle of a massive business investment cycle. Announced private and foreign investments have reached roughly $8.8 trillion, driven by artificial intelligence infrastructure and domestic manufacturing.
- The stock market is broadening. The equal-weight S&P 500 (RSP) has surged over 5% year-to-date while the cap-weighted S&P 500 (SPY) sits near flat—a reversal from two years of Magnificent 7 dominance.
- AI-related capital spending now accounts for about 5% of U.S. GDP, with projections reaching 5.6% by 2030—comparable to wartime mobilization levels.
- The joint U.S.-Israel military campaign against Iran, launched February 28, 2026, has caused short-term volatility. A 10–15% temporary correction is possible if oil prices spike.
- A 14% mid-year drawdown is historically normal. Since 1980, the S&P 500 has averaged a 14% intra-year decline, yet finished positive in 34 of 45 years.
- Over 30 years, 3% annual inflation cuts a dollar’s purchasing power by roughly 60%. S&P 500 dividends have more than quintupled since 1996—far outpacing the cost of living.
David L. Berkowitz, Chief Investment Officer and Financial Advisor
Nearly 40 years of experience — from trading and research at a $250 million hedge fund in the early 1990s, to two decades as a portfolio manager, to teaching thousands of executives and employees how to create shareholder value through EVA and value-based management.Now helping individuals and families become shareholders through disciplined investing, concentrated portfolios, and direct stock ownership.
How big is the current U.S. business investment cycle?
Announced private and foreign investment commitments have piled up to roughly $8.8 trillion. The headline number includes pledges from Apple, SoftBank, NVIDIA, and dozens of others. Some of those commitments are firm. Others are aspirational. A CNN analysis found that portions of the total include trade agreements and vague bilateral pledges rather than direct capital expenditures on U.S. soil.
Strip away the diplomacy, and the number that matters is business fixed investment. The Bureau of Economic Analysis reported private nonresidential fixed investment at $4.38 trillion (annualized) in Q4 2025. That’s real money flowing into factories, data centers, equipment, and intellectual property.
The driver is computing power. A single AI query uses about 10 times the energy of a traditional search, according to the International Energy Agency. That demand is pulling capital into data centers, power plants, and chip fabrication at a pace the country hasn’t seen since the post-war industrial expansion.
Why does AI infrastructure spending rival wartime mobilization?
AI-related capital expenditure now runs at about 5% of U.S. GDP. Alger, the growth-equity firm, projects that figure will hit 5.6% by 2030—a level that draws direct comparisons to America’s World War II manufacturing mobilization.
The four largest hyperscalers—Amazon, Google, Microsoft, and Meta—are expected to spend more than $350 billion on capital expenditures in 2025 alone. Goldman Sachs projects the group’s 2026 capex will reach $527 billion. McKinsey estimates the total global data center buildout will require nearly $7 trillion by 2030.
This isn’t vapor. In the first half of 2025, technology-related spending contributed more to U.S. GDP growth than consumer spending—the first time that has happened in recent history.
What is the Great Rotation, and why does it matter now?
For two years, a handful of mega-cap tech stocks—the so-called Magnificent 7—pulled the S&P 500 higher while the other 493 stocks lagged behind. That trade has reversed.
The Invesco S&P 500 Equal Weight ETF (RSP) has climbed more than 5% year-to-date while the cap-weighted SPY sits near zero. The equal-weight index hit new record highs in February.
What changed? Investors grew skeptical of massive AI capex budgets that haven’t yet shown up in earnings. Money rotated out of the top-heavy names and into the broader market—industrials, financials, healthcare, energy. Trade policy is reinforcing the shift. Tariff structures encourage domestic production, creating what some call a return on proximity.
This is healthy. A rising market driven by 493 companies is more durable than one dragged upward by seven.
SPY vs. RSP: The 2026 performance gap
| Metric | SPY (Cap-Weight) | RSP (Equal-Weight) |
|---|---|---|
| YTD Return (through Feb) | ~0.6% | ~5%+ |
| Tech Allocation | ~34–35% | ~16% |
| P/E Ratio | ~27.5x | ~22.4x |
| Concentration Risk | Top 7 = ~30%+ of index | Each stock = ~0.2% |
Sources: 24/7 Wall St., Yahoo Finance, AAII
How should long-term investors think about the Iran conflict?
On February 28, 2026, the United States and Israel launched a joint military campaign against Iran. The operation targeted nuclear sites, missile infrastructure, and political leadership. Iran retaliated with missile and drone strikes against U.S. bases across the Gulf and against Israel.
Oil routes through the Strait of Hormuz are under threat. A sustained disruption could spike energy prices and trigger a temporary 10–15% market correction. That is the short-term reality.
The long-term reality is different. Generalized stock price declines are frequent and have always been temporary. No shareholder-owned company is forced to keep losing money. The strongest businesses go on offense during a crisis—they acquire competitors at discounts, expand into retreating markets, and emerge larger on the other side.
We use periods of temporary weakness to buy quality at a discount. That is not optimism. It is arithmetic.
Is a 7% decline something to worry about?
Not based on history. Since 1980, the S&P 500 has averaged a 14% intra-year drawdown. In 34 of 45 years, it still finished in the black. The current 7% dip is roughly half of what markets typically experience in any given calendar year.
Midterm election years are historically rougher than average—the average midterm-year drawdown is 18%. But the six months after midterm elections tend to be the strongest period of the presidential cycle, with an average S&P 500 gain of 14%.
Volatility is the toll investors pay on the road to attractive long-term returns. If you’ve already covered your liquidity needs, a temporary dip is noise—not signal.
Why do equities beat cash over a 30-year retirement?
Over 30 years, inflation running at 3% per year cuts a dollar’s purchasing power by roughly 60%. The math is simple: (1 − 3%)^30 ≈ 40%. A retiree who holds cash “safely” is guaranteeing a slow, quiet loss of spending power.
Equities solve this problem. Between 1996 and 2025, the cost of living roughly doubled. Over that same period, the S&P 500’s cash dividend more than quintupled—growing from about $14 per share to over $79.
Cash dividends, not stock prices, are what fund a retirement. When the businesses you own raise their earnings and dividends year after year, staying invested through short-term noise is straightforward arithmetic.
As Nick Murray writes, there is no such thing as no risk. You have to choose where you want your insecurity—perfect emotional security today by holding cash, or the risk of running out of purchasing power tomorrow.
What makes the ValueAligned approach different?
Most advisors deal in prediction and performance-chasing. We deal in planning and behavioral coaching.
We do not buy the market. We help families become shareholders in a concentrated basket of the world’s highest-quality businesses—companies like NVIDIA, Broadcom, and Alphabet that provide the infrastructure required to deploy AI models at scale.
Our target remains 15% to 25% annual growth in intrinsic business value. At that rate, capital doubles every three to five years.
Our highest function is serving as the circuit breaker between a non-rational impulse—panic—and a destructive act: selling low.
Performance Disclosure
Past performance is no guarantee of future results. The VAP Model Portfolio represents hypothetical performance and does not account for taxes or brokerage costs. Performance is net of advisory fees. SPY and RSP returns noted as of late February 2026.
Endnotes
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White House Investments Tracker – Official White House page tracking announced investment commitments
https://www.whitehouse.gov/investments/ -
CNN Fact Check – CNN analysis of the $8.8 trillion investment claims and methodology gaps
https://www.cnn.com/2025/10/11/politics/fact-check-trump-17-trillion-investment -
FRED – Private Nonresidential Fixed Investment – Bureau of Economic Analysis data on quarterly business fixed investment
https://fred.stlouisfed.org/series/PNFI -
Goldman Sachs – AI Power Demand – Goldman Sachs Research report on AI-driven data center electricity consumption
https://www.goldmansachs.com/insights/articles/AI-poised-to-drive-160-increase-in-power-demand -
KKR – AI Infrastructure – KKR analysis of AI infrastructure capex as a share of GDP and hyperscaler spending
https://www.kkr.com/insights/ai-infrastructure -
Alger – AI Spending Projections – Alger research projecting AI-related spending could reach 5.6% of GDP by 2030
https://www.etftrends.com/artificial-intelligence-content-hub/ai-spending-hit-56-gdp-2030-alger-projects/ -
Goldman Sachs – 2026 AI Capex – Goldman Sachs analysis of why AI companies may invest more than $500 billion in 2026
https://www.goldmansachs.com/insights/articles/why-ai-companies-may-invest-more-than-500-billion-in-2026 -
Empower – AI Revolution – Empower analysis showing tech spending exceeded consumer spending in H1 2025 GDP contribution
https://www.empower.com/investment-insights/ai-revolution-rolls -
24/7 Wall St. – Equal-Weight S&P 500 – Analysis of RSP outperformance versus SPY in early 2026
https://247wallst.com/investing/2026/03/05/the-equal-weight-sp-500-is-quietly-crushing-the-market-in-2026/ -
FinancialContent – Great Rotation – Market analysis of the 2026 rotation from cap-weight to equal-weight strategies
https://markets.financialcontent.com/stocks/article/marketminute-2026-3-10-the-great-rotation-of-2026-equal-weight-etfs-surge-as-mega-cap-tech-giants-falter -
CFR – U.S.-Israeli Strikes on Iran – Council on Foreign Relations expert assessments of the February 28, 2026 military campaign
https://www.cfr.org/articles/gauging-the-impact-of-massive-u-s-israeli-strikes-on-iran -
Global Guardian – Iran Campaign – Security briefing on the joint U.S.-Israel military operation and regional implications
https://www.globalguardian.com/newsroom/u.s.-israel-launch-military-campaign-against-iran -
LPL Research – Intra-Year Drawdowns – Historical data on S&P 500 average intra-year declines and subsequent annual returns
https://www.lpl.com/research/blog/another-big-up-year-with-a-sharp-drawdown.html -
Nasdaq – Midterm Election Year Patterns – Analysis of S&P 500 performance during midterm election years since 1957
https://www.nasdaq.com/articles/stock-market-does-every-4-years-it-signals-alarming-drop-sp-500-2026-if-history-repeats -
S&P 500 Dividend Data – Historical S&P 500 dividend per share data by year
https://www.multpl.com/s-p-500-dividend/table/by-year -
BLS – Consumer Price Index – Bureau of Labor Statistics CPI data for inflation calculations
https://www.bls.gov/cpi/
