The Boom Loop: Why the Stock Market Could Surge Further

The Macro Setup Most Investors Are Missing

The stock market is rallying, earnings are beating expectations, and continuing jobless claims just hit their lowest level in 50 years. Yet a large portion of investors remain frustrated — or worse, sidelined — waiting for the correction that keeps not coming. If that's you, it's worth understanding the structural forces now stacking up behind this market. Because if Bank of America, Deutsche Bank, and the data are all pointing in the same direction, the move may not be over. It may just be getting started.

This isn't about blind optimism. It's about reading the mechanics clearly: a convergence of global fiscal expansion, AI-driven capital expenditure, post-tariff infrastructure build-outs, and a potential oil supply glut are all feeding the same loop. Here's how to think about it.

The Government Spending Boom Loop Explained

Bank of America has framed the core thesis as a "boom loop" — and it's a compelling one. Their projection: global government spending rises 15% by fiscal year 2027, with sustained momentum beyond that. The catalyst isn't generosity. It's survival.

Deglobalization, rising populism, and widening inequality are forcing governments everywhere — not just in Washington — to act. Germany is rebuilding defense capacity following the withdrawal of 5,000 US troops. Canada is investing in energy infrastructure. Gulf states are expanding oil production outside of OPEC constraints. And virtually every major economy is now scrambling to own its supply chains in chips, rare earths, ports, and energy.

The key insight here is the velocity effect of government spending. When governments inject capital into infrastructure, that money doesn't sit still. It pays contractors, who pay workers, who spend at local businesses, which hire more staff, which generates more taxable income, which funds more spending. Government expenditure consistently produces some of the highest economic multiplier effects of any spending category — often cited at 1.5x to 2x in the literature.

Practical takeaway: fiscal stimulus at this scale is structurally bullish for GDP, corporate earnings, and equity markets — particularly in sectors like defense, energy infrastructure, industrials, and domestic manufacturing.

Deglobalization Is Inefficient — and That's the Point

Here's the counterintuitive part. Deglobalization is economically inefficient by design. Duplicate ports, parallel defense industries, redundant chip fabs — none of this is optimal from a pure free-market standpoint. China makes drones cheaper. Taiwan makes chips better. It doesn't matter anymore.

National security concerns — sharpened by the Russia-Ukraine war, Iran's nuclear ambitions, and supply chain shocks from COVID — have fundamentally repriced the value of self-sufficiency. The US alone has committed over $1.1 billion to a domestic drone manufacturing program, despite the fact that China can produce the same hardware at a fraction of the cost. That's not a bug. That's the policy.

This shift creates what looks like waste on a spreadsheet but functions as stimulus in practice. Every dollar spent building a "redundant" domestic battery factory or semiconductor plant is a dollar entering the real economy. When you multiply that across dozens of governments all doing the same thing simultaneously, the aggregate demand effect is enormous.

For investors, this means: winners are being picked by governments, not just markets. MP Materials, Intel, domestic drone manufacturers, nuclear energy developers — these companies are receiving capital injections that function like corporate stimulus checks, often in the billions. Positioning ahead of those designations, or in ETFs exposed to the trend, is one of the more straightforward plays available.

Earnings vs. Positioning: A Gap Worth Watching

Deutsche Bank's data shows something revealing: discretionary positioning among retail investors is rising, but it remains well below where it should be relative to current earnings performance. In other words, the market hasn't fully priced in how strong corporate profits actually are.

Meanwhile, Bank of America reports that private client allocation to equities is at its highest since December 2021. That's a contrarian signal worth taking seriously — December 2021 was the market peak before a brutal 2022 selloff that dragged major indices down 30% or more. High allocation doesn't cause corrections, but it does reduce the pool of new buyers available to push prices higher, and it can amplify selling pressure when sentiment shifts.

The nuanced read: earnings justify higher prices, but positioning suggests the easy money from pure re-rating may be running thin. The next leg, if it comes, likely needs a new catalyst — and there are several candidates queued up.

Financials positioning, notably, sits near multi-year lows — comparable to levels seen in 2022 and the late-2018 bear market. With crypto trading volumes compressing spreads and private credit headwinds weighing on bank sentiment, names like SoFi and Robinhood have pulled back significantly from 2024 highs. For patient capital, that's a watchlist moment, not necessarily a buy signal today.

AI Token Consumption Is Accelerating Faster Than Expected

Here's a number that should reframe how you think about AI investment cycles: weekly token consumption quadrupled between January and March of this year. That's not annual growth. That's a 4x move in roughly 10 weeks.

The driver is largely coding tools — Anthropic's Claude and similar platforms have triggered a step-change in developer adoption. When AI is helping you ship production-quality code, the ROI calculation becomes obvious. You pay because you're producing something that generates revenue. This is fundamentally different from paying for AI-generated entertainment content, which has low monetization ceiling.

This is precisely why major AI platforms have been quietly deprioritizing consumer generative media (like OpenAI winding down Sora's prominence) in favor of productivity and developer tools. The token economics are better, the retention is stronger, and the willingness to pay scales with user income.

For the big tech players — Google, Meta, Amazon — this explains why buybacks have paused. Capital that flowed into shareholder returns in 2023 and early 2024 is now being redirected into CapEx: data centers, custom silicon, energy infrastructure. This isn't a red flag. It's a bet that the infrastructure they're building today will generate outsized returns as token demand continues to compound.

The SpaceX angle is adjacent but relevant: reports are circulating that institutional investors are rotating out of select Magnificent 7 names to fund SpaceX exposure. Whether or not that trade has legs, it signals that sophisticated money is looking for the next asymmetric infrastructure play — and space-based compute and connectivity is increasingly on that list.

Oil, the Strait of Hormuz, and the Spending Wildcard

The Iran situation adds another dimension. The Strait of Hormuz handles roughly 20% of global oil trade. Ongoing tensions there have kept oil risk premia elevated — but markets may actually be underpricing those risks in the short term, even as they're poised to overshoot to the downside once a resolution is reached.

The Economist's thesis: a resolution to Middle East tensions, combined with UAE and other Gulf producers expanding output outside OPEC constraints, creates a meaningful oil supply glut. More oil supply means lower energy prices. Lower energy prices mean higher consumer disposable income. Higher disposable income means more retail spending. More retail spending means better corporate margins.

Stack that on top of the fiscal spending tailwinds and the earnings-positioning gap — and you have a multi-layer stimulus scenario that few commentators are fully pricing in simultaneously.

The risk, of course, is that this much stimulus also means inflation doesn't die as cleanly as the Fed would like. Watch the 10-year yield. If fiscal expansion and consumer spending re-accelerate while the Fed holds rates steady, the bond market will say so before equities do.

What This Means for Your Portfolio Right Now

The boom loop thesis isn't a call to go all-in. It's a framework for thinking about allocation — where to be overweight, what to wait on, and what the data actually supports.

• Overweight themes: Defense and aerospace, domestic energy infrastructure, AI infrastructure (data centers, cooling, power), industrials exposed to reshoring
• Watch closely: Financials — particularly fintech names that have pulled back 40–50% from highs. Low positioning in a sector often precedes rotation in
• Be cautious about: Chasing megacap tech after it's already re-rated. The earnings are real, but private client allocation at 2021 levels is a yellow flag
• Monitor: Oil prices and the Strait of Hormuz situation. A resolution = deflationary tailwind. Escalation = stagflation risk
• AI specifically: Token consumption growth at this rate means AI infrastructure spending won't slow in 2025. Software companies riding that wave on the application layer are the next rotation target after hardware has had its run

The conditions for a continued market rally are real and data-backed. So are the conditions for volatility. The investors who'll do best are the ones who understand both — and position with conviction rather than noise.

Frequently Asked Questions

What is the "boom loop" that Bank of America is describing?

The boom loop refers to a self-reinforcing cycle of government spending triggered by deglobalization and national security concerns. As countries invest in domestic infrastructure — energy, ports, defense, semiconductors — that spending stimulates GDP growth, corporate profits, and employment, which in turn generates more tax revenue and justifies further spending. Bank of America projects global government expenditure rising 15% by fiscal year 2027.

Why would deglobalization be good for stock markets if it's economically inefficient?

In the short-to-medium term, inefficiency created by duplicate infrastructure build-outs acts as fiscal stimulus. When governments spend on domestic manufacturing, defense, and energy even at above-market costs, that capital enters the real economy, creates jobs, and boosts corporate revenues. The long-term efficiency cost is real, but the near-term demand effect is bullish for GDP and equities — particularly in sectors receiving direct government contracts.

What is driving the rapid increase in AI token consumption?

The primary driver is the adoption of AI-powered coding tools, particularly from Anthropic and similar providers. When developers use AI to write and ship production code, the productivity gains are measurable and the ROI is clear — leading to much higher and more sustained usage than consumer entertainment applications. Weekly token consumption quadrupled between January and March, reflecting this step-change in professional adoption.

Why are financials stocks at such low positioning levels, and does that represent an opportunity?

Financial positioning is near its lowest levels since 2022, driven by slower crypto trading volumes (which had been a high-margin revenue source for fintechs like Robinhood) and private credit headwinds affecting traditional banks. Low positioning in a sector often precedes rotation as contrarian investors move in. Names that have pulled back 40–50% from recent highs may offer value for patient investors, though confirmation of a revenue recovery catalyst is worth waiting for before sizing up.

How does a potential oil supply glut connect to stock market performance?

If Middle East tensions ease and Gulf producers — particularly the UAE — expand output, global oil supply could increase substantially, driving energy prices lower. Cheaper oil reduces costs for businesses and increases consumer disposable income, both of which are positive for corporate margins and retail spending. Combined with existing fiscal stimulus and strong earnings, falling oil prices would represent a third simultaneous tailwind for equity markets.