The Bull, The Bear, And The Military Stock Dilemma 🔍

Did you know that the Marshall Plan, initiated by the United States in 1948, provided over $12 billion (about $130 billion in today's dollars) in economic support to help rebuild European economies after the devastation of World War II?

This historical fact demonstrates that just as the US has invested in its allies in the past, we will also have to do so now in order to invest in a better future for the world.

In this edition of our newsletter, we're going deep into the financial and geopolitical currents shaping our world:

• Should We Care About Ukraine: First, we explore the critical role of U.S. support for Ukraine amongst growing isolationist sentiments and the potential consequences of a power vacuum on global stability 🤔

• The Bull Lives: Next, we’ll present an examination of the stock market's resilience, driven by standout performers like Nvidia and diverse sectors including financials and healthcare, showcasing the underlying strength of our economy 🐂

• Military Stocks Are Struggling: Finally, despite an increasingly tense global stage, we dissect why military stocks are not soaring as expected, amidst cautious U.S. defense spending and budgetary constraints 📉

Our aim is to provide you with insights that go beyond the headlines, offering a strategic perspective on where the market is headed and how historical precedents shape our financial future.

Should We Care About Ukraine? 🤔

There is a stiff isolationist wind blowing in the United States.

The thinking goes that we have so many problems at home, we don’t have the financial resources to spend money abroad on unwinnable wars.

The argument sounds convincing 🤷🏻

But a look below the surface reveals its dangerous flaws.

History shows that beyond a shadow of a doubt, when one superpower withdraws, other dangerous powers will step in to fill the void 🕳️

In fact, there is not one single example throughout history that has been an exception to the rule.

One might argue, “Who cares if Russia fills the void in Eastern Europe?”

But revisionist, expansionary powers like Russia and China never stop there.

They expand and expand until they are checked.

And the more they are allowed to expand, the more our allies lose trust in our will and our strength.

When we finally choose to act, we will have created a much larger monster, and the confrontation will be that much more difficult and bloodier 💥

The time to act is now by continuing to send weapons to Ukraine, and nobody is talking about boots on the ground.

The Bull Lives 🐂

Nvidia is driving an outsize share of the stock market’s rally.

But some other stocks are doing some heavy lifting, as well—including non-technology names.

Nvidia stock is up 62% so far this year, beating the 6.7% rise in the S&P 500.

Some may wonder how it’s possible that other stocks are contributing to the market’s gain if Nvidia stock is up a ton, while the index is only up by single digits 🤷🏻

Well, the reality is that only four of the S&P 500’s 11 sectors have outperformed the S&P 500 this year—tech, financials, healthcare, and communications services.

In financials, it’s Berkshire Hathaway that’s leading the charge; it was up about 20% for the year before giving up some gains in recent days 🤑

There’s plenty of reasons to own the S&P 500.

A handful of names tend to drive overall market performance.

This is not unusual or worrisome.

Bull markets always have leadership names, and it is heartening to see there are sectors that are propelling the market higher that are not related to technology 📈

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Military Stocks Are Struggling 📉

A scarier world hasn’t made winners out of military stocks lately.

Defense stocks tend to go up when there is a military event, but further gains need a follow-through of U.S. involvement and more defense spending 💰

The trajectory of US funding for Ukraine and Israel in the war in Gaza is heading down, and there is no sign that the US is prepared to make a significant increase in its own defense spending, at least not yet 🤚

There is also the health of the sector’s best customer, the U.S. government.

Investors are concerned that deficits will put a lid on U.S. military spending ❌

Inner Circle Macro Update 🔍

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