10 Reasons to Remain Optimistic About the US Economy

Roaring 2020s II: Refresher Course. There are 10 good reasons for our optimistic update of the outlooks for real and companies’ earnings in 2026. Without further ado, here they are:

(1) Roaring consumer spending. Many taxpayers are expected to see significant refunds this tax season. Early estimates from the Treasury Department suggest the average refund could rise by roughly $1,000, potentially bringing the typical check to nearly $4,000—up from approximately $3,100 last year. This increase is largely driven by the One Big Beautiful Bill Act (OBBBA), which was signed into law in July 2025 and applied many of its tax-cutting provisions retroactively to the 2025 tax year.

Since paycheck withholding was generally not adjusted mid-year to account for these retroactive cuts, many people effectively “overpaid” their 2025 taxes and will recoup that difference as a larger refund now. Like the pandemic-era relief checks from the government, the boosted refunds will increase disposable and expenditures (Fig. 7 below).

This should offset the recent flattening of disposable income, which we attribute to the retiring Baby Boom generation. They will continue to boost consumer spending by spending their retirement funds. As a result, the personal saving rate should continue to fall, boosting consumption (Fig. 8 below).

(2) Amazing wealth effect. As we’ve often observed, the Baby Boomers are the wealthiest retiring generation ever on Planet Earth. At the end of Q3-2025, their net worth totaled a record $88.5 trillion, accounting for 51.2% of total household net worth (Fig. 9).

At the end of Q3-2025, they held a record $30.0 trillion in corporate equities and mutual fund shares, accounting for 53.2% of the total for all households (Fig. 10 below).

In the past, worrywarts worried that when the Baby Boomers started to retire, they would depress the stock market by selling their equities to meet their needs. Instead, it seems the bull market in stocks is allowing retirees to enjoy a comfortable lifestyle while their net worth continues to rise!

The upward trend in the ratio of household net worth to disposable income helps to explain why the personal saving rate has been trending down over the years (Fig. 11 below).

Gallup reports that 62% of adult Americans held stocks in 2025 (Fig. 12 below).

The total amount of assets held in IRAs rose to a record $18.0 trillion during Q2-2025 (Fig. 13).

Since the start of the Roaring 2020s through Friday’s close, the market capitalization of the Wilshire 5000 has increased by $36.8 trillion to a record $69.4 trillion currently (Fig. 14).

(3) Roaring tech capital spending. High-tech capital spending in nominal GDP rose $230 billion y/y to a record $2.3 trillion (saar) during Q3-2025 (Fig. 15 below). This year, high-tech capital spending on AI infrastructure, including power generation and transmission, is projected to total $700 billion. Last week, investors were freaked out by how much the hyperscalers planned to spend on AI infrastructure until they seemed to realize on Friday that this would be very stimulative to overall business activity as well as the cash flow of the hyperscalers. They realized that after Nvidia CEO Jensen Huang made these observations in an interview with Scott Wapner on CNBC’s “Closing Bell.”

Investors have been concerned that so much capital expenditures on AI will deplete the cash flow of the hyperscalers. Huang dismissed these concerns about overspending, stating that the capital investments are “appropriate and sustainable” because they lead to “profitable tokens” and rising cash flows.

Overall corporate cash flow rose to a record-high $3.9 trillion (saar) during Q3-2025 (Fig. 16). It will get a big boost from OBBBA this year. Under prior law, bonus depreciation had dropped to 60% in 2024 and was heading toward 40% in 2025. OBBBA permanently restores 100% bonus depreciation for qualifying property (equipment, machinery, etc.) placed in service after January 19, 2025.

This allows companies to deduct the full cost of capital investments immediately. It effectively acts as an interest-free loan from the government, boosting near-term free cash flow for capital-intensive sectors like industrials, energy, and telecommunications. Technology is now a capital-intensive industry too!

Previously, companies were forced to amortize domestic research & development (R&D) costs over five years (a change that began in 2022). OBBBA reinstates the ability to immediately expense 100% of domestic R&D costs in the year they are incurred. This provides a massive liquidity boost for tech and pharmaceutical companies. By reducing taxable income in the current year rather than spreading it out, firms retain more cash for reinvestment or AI-related R&D.

(4) Roaring onshoring. President Donald Trump has claimed that his administration has secured a historic amount of investment—primarily from foreign governments and corporations—as a direct result of his “America First” policies and tariff threats. The official White House tracker (“The Trump Effect”) lists major investments at approximately $9.6 trillion as of late 2025.

The Bureau of Economic Analysis reported that foreign direct investment in the US was $323.6 billion (saar) during Q3-2025 (Fig. 17 below). The multi-trillion-dollar figures cited by the administration largely represent “commitments” and “economic exchange targets” projected over the next decade, rather than liquid capital that has already entered the US economy.

Nevertheless, foreign direct investment is likely to increase significantly over the next three years, while Trump remains in office.

(5) Accelerating productivity growth. Our “Roaring 2020s” thesis is a structural bull case for the US economy, predicated on the idea that the current decade is a mirror image of the 1920s—not because of “flapper” culture, but because of a massive, technology-led productivity boom driven this time by “Brains, not Brawn.” Unlike past eras when technology was seen as a threat to jobs, today’s labor scarcity (mostly driven by retiring Baby Boomers) is forcing companies to innovate to augment the productivity of their workers. When companies can’t find enough workers, they are compelled to invest in productivity-enhancing technology to meet the demand for their goods and services, which should remain strong for the reasons discussed above

We’ve attributed the current productivity surge to the BRAIN acronym: Biotechnology, Robotics, Artificial Intelligence, and Nanotechnology. AI is not a “bubble” but the natural next step in a digital revolution that started with mainframes during the mid-1960s and evolved through PCs, the Internet, and cloud computing. Information technology now accounts for more than 50% of current dollar capital spending, up from just 15% at the beginning of the 1960s (Fig. 18).

This year, the productivity benefits of AI should broaden from the technology producers (like Nvidia (NASDAQ:) and the other Magnficent-7) to the S&P 500’s “Impressive 493”—i.e., the users of the tech that will see significant margin expansion as they automate routine tasks.

Almost all the awesome growth in real GDP during the final three quarters of 2025 was driven by productivity (Fig. 19 below).

(6) Stimulating fiscal policy. As explained above, the tax cuts in the OBBBA are providing lots of fiscal stimulus to both consumer and business spending this year. Meanwhile, the bill doesn’t do much, if anything, to reduce the growth in federal government outlays (Fig. 20). As a result, the federal deficit will remain somewhere between $1.5-$2.0 trillion this year.

(7) Stimulating monetary policy. The Fed has reduced the by 175bps since September 2024. Monetary policy works with a long and variable lag, especially when the Fed is easing. Consequently, much of the monetary easing so far might be most stimulative this year. Indeed, we may be starting to see that in the rising growth rate of bank loans (Fig. 21).

(8) Energizing energy. As mentioned above, the boom in AI infrastructure spending includes lots of spending on generating and transmitting power to the data centers.

(9) Rebalancing globalization. The Trump administration’s trade policies may already be starting to depress US imports while boosting US exports. That was one of the reasons why real GDP growth was strong during Q4-2025.

(10) Animal spirits. All these developments might revive animal spirits. Despite the resilience and strength of real economic growth during the first six years of the Roaring 2020s, surveys of consumer and business confidence have turned increasingly pessimistic over the past few years. They have been very misleading economic indicators, indeed, as we have consistently contended. However, the surveys may be starting to turn more optimistic, as suggested by the recent improvements in the and the purchasing managers index.

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