I was reading the summary of an analysis of the US economy vs. US stock market this morning. It said, in effect, that hedge fund use of financial leverage to buy stocks (looked at another way, being short fixed income and long the stock market) was increasing the wealth of the most affluent Americans. This wealth effect, in turn, was causing this group to increase their spending on goods and services–and is a key aspect of this year’s rise in the S&P 500.
This could be so, I guess. The big issue that I see with this analysis, though, assuming I’ve read it correctly, is that the S&P 500 ex the Consumer discretionary sector is +12.6% year to date. Consumer discretionary itself, in contrast, comes in so far in 2026 at -4.1%–and the overall S&P 500 at +10.9%. Consumer staples, is also an index laggard, but at +6.1% ytd, has substantially outperformed discretionary spending.
My picture of what’s going on is a bit different. Last year could be seen as very much about capital flight from the US. This year, however, the S&P 500 and EAFE indices are more or less even year to date.
If there’s a theme to the S&P 500 so far in 2026, I think it’s orienting equity portfolios toward companies that generate revenues outside the US and away from revenues generated domestically. In 2025 this was key, given the currency decline Washington induced back then. Now, although I think it’s still important to have the same orientation of costs in dollars/revenues in other currencies, the broader conceptual issue, I think, is whether the Trump agenda, which has the effect of systematically shrinking the domestic economy, will continue to be at the forefront of US economic policy.
If so, I think this would trigger a substantial further portfolio shift away from the US and toward the EU, Canada, Japan, and maybe even China, as source of future economic growth.