With all that’s going on in the world today, it’s quite remarkable—at first glance—that stocks have held up against the headwinds as well as they have. But when considering the market still enjoys massive support from the historic high in defense spending and the ongoing AI build-out, it’s actually not that surprising.
This brings us to what I think is a pertinent review of some of the key trends we’ve focused on in the Cabot Turnaround Letter for 2026. I’ve repeatedly emphasized my view that the bull market will likely remain intact—notwithstanding periodic turbulence—for the bulk of this year, based mainly on my estimation that the AI build-out isn’t complete. As a result, I believe this will be reflected by continued momentum in the key areas of tech needed to support it, most notably semiconductor companies (the most direct beneficiaries of the AI boom).
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To that end, it’s not surprising that even with the turmoil in the Middle East, chipmakers are outperforming the general market, including our holding of Intel (INTC). Indeed, Intel broke out to new yearly highs in the wake of its latest earnings, along with many of its industry peers, on a combination of relief from the extended ceasefire between the U.S./Israel and Iran, but also a string of bullish catalysts specifically tied to the industry.
For Intel, the company hasn’t yet been recognized as one of the biggest AI winners by investors, but it’s still positioned to materially benefit from recent developments. Its opportunities include its Xeon CPUs for AI data centers, the Gaudi AI accelerators, its edge AI chips and, of course, its foundry business for making AI chips for other companies.
Intel’s outperformance of late is specifically tied to a number of bullish news developments over the last few days, including Intel’s decision to buy back full ownership of its Ireland chip fab, Fab 34, for just over $14 billion. (Intel is reacquiring the 49% stake held by Apollo-managed funds, which was originally sold in 2024.)
This move restores full ownership of the Leixlip plant to Intel, which in turn strengthens its manufacturing strategy. More importantly, it underscores the degree to which Intel’s financial position is improving after a long period of struggling.
Concerning the military spending trend, analysts are making comparisons between the 1980s Reagan-era defense buildup and related Cold War industrial expansion and the 2026 defense spending surge. In the former case, the outsized spending helped support the earnings of industrial companies, which is what we’re seeing today.
The defense spending of the current year is arguably also helping to improve market breadth beyond merely the tech sector, which in turn supports my thesis of the bull market having legs beyond the short term.
While it’s not a direct beneficiary of the defense spending trend, our long-term holding of GE Aerospace (GE) does have exposure through the engines it manufactures for major military platforms, including F-15 and F-16 fighter jets, helicopters and military transport aircraft. Last month, for instance, the firm secured up to $5 billion from a U.S. Air Force contract for F110 engines, which help power the Air Force’s advanced twin-engine F-15EX Eagle II fighter jet.
And while the defense end of GE’s business is smaller than its commercial aviation segment, it continues to expand, with defense and propulsion orders rising over 60% year over year in last year’s fourth quarter, while revenue in its defense-related segment grew in the double digits. Even more impressive is the company’s massive $190 billion backlog across its commercial and defense programs for the current year.
Yet another aspect of my thesis for this year is my prediction that the chemical cycle will likely turn the corner in 2026. The market apparently believes this will be true, as evidenced by the solid performance posted by numerous specialty chemical stocks. My bullish view further aligns with the growing number of industry analysts who see the commodity chemical companies strengthening heading into the second half of the year. Both segments of the chemical industry are represented by our primary stock holding in the sector.
A final part of my investment thesis for 2026 involves a trend that we’ve focused on for the last couple of years—and one which I don’t see diminishing in importance anytime soon. I’m referring, of course, to inflation, which will almost certainly be a continued headwind to profit margins for companies across a broad array of sectors, but which will also benefit particular industries.
Gold and silver miners are among the most likely beneficiaries, as are energy sector drilling, exploration and service providers. This covers our gold, silver and energy sector holdings.
And while consumer staples stocks may have temporarily fallen out of vogue in recent weeks, inflation’s continuance should provide a large measure of support for the stocks in our portfolio that fall under this category.
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