Jed Ellerbroek on Retail, Aerospace, and 2026 Market Outlook

Retail Sector Dominance

• 🎯 Big retailers like Amazon, Costco, and Walmart are outgrowing competitors and capturing most of the US retail sales growth.
• 🛒 Walmart has benefited from consumer trade-down and surprisingly, its strongest customer segment is the high-end consumer.
• 📈 Costco's valuation has decreased to near Walmart's, with both growing mid-single digits, while Amazon leads with 11-12% annual growth due to logistics and warehouse expansion.

Aerospace and Defense Outlook

• 🚀 The aerospace and defense sector is expected to see strong demand, though some of this is already priced into stocks.
• 💰 Transdime is highlighted as a stock with reasonable valuation, benefiting from simultaneous growth in commercial aerospace, aftermarket services, and defense budgets.

2026 Market Growth Drivers

• 📈 A fourth year of double-digit percentage gains for the S&P 500 is anticipated, driven by 14% aggregate corporate earnings growth, led by tech but supported by industrials and financials.
• 📉 Falling interest rates, influenced by the Fed, are expected to benefit the market.
• 💰 The tax bill and rising IPO and M&A activity are also projected to be positive for markets.

Market Risks and Political Impact

• ⚠️ A significant risk is the AI infrastructure buildout being financed by capital markets issuance (equity and debt) rather than hyperscalers' cash flows, due to the inherent volatility of capital markets.
• 🏥 Midterm elections are expected to most impact the healthcare industry, affecting earnings and business prospects for providers and insurers based on the regulatory environment.
• 📊 While some complain about high valuations, they are seen as reflecting increased profitability and growth prospects of large tech companies.