The S&P Is Up 11%. The Pentagon Just Asked for $200B More.

The S&P 500 closed above 7,100 this month, per CNBC. The Nasdaq is on its longest winning streak of the 21st century. Brent crude has spent most of 2026 above $90 a barrel, the Strait of Hormuz remains a contested waterway, and the Pentagon has asked Congress for an additional $200 billion to underwrite the Iran campaign. None of it stopped the rally. For investors raised on the old correlations — war is bearish, uncertainty is bearish, $120 oil is bearish — the price action of the past year has been disorienting. The market is not ignoring the risks. It has repriced them.

The Breakdown

Partner Perspective

The Full Picture

The conventional explanation for the rally — liquidity, AI euphoria, a Fed that blinks — is correct but incomplete. The deeper story is that institutional capital has learned to distinguish between geopolitical noise and geopolitical regime change. Wars that do not threaten the dollar's reserve status, the global semiconductor supply chain, or U.S. corporate earnings power tend to produce sharp drawdowns followed by faster recoveries. Traders who sold the Iran headlines in March bought them back in April. What changed is not the headlines but the flows. Defense and aerospace ETFs have delivered three-year annualized returns above 30%, per U.S. News data. NATO members have committed to 5% of GDP on core defense by 2035. The 2026 U.S. defense budget request has climbed from $1 trillion to $1.5 trillion.

Private equity is not waiting for the next cycle. Funds that five years ago would have pursued software roll-ups are now building platforms in autonomy, electronic warfare, secure communications, and dual-use AI. Prime contractors are writing minority checks into startups they once would have ignored. The line between defense and technology — between Palantir and Nvidia, between Anduril and OpenAI — has effectively dissolved. Nowhere is the reordering more visible than in the orbital economy. The Space Foundation estimated the global space economy at roughly $613 billion in 2024, while McKinsey and the World Economic Forum have projected it could approach $1.8 trillion by 2035. Satellite broadband, earth observation, launch services, space-based compute, direct-to-cell telecommunications — each points to a large addressable market, and each is converging on a small set of vertically integrated operators.

SpaceX has reportedly filed confidentially for an IPO at a targeted valuation near $1.75 trillion, according to CNBC and Reuters reports — a figure that, if realized, would exceed the combined market capitalization of Boeing, Lockheed Martin, and Northrop Grumman. Starlink has more than 10 million subscribers, per Barron's, with revenue climbing alongside subscriber growth. Reports peg SpaceX's implied private-market valuation at levels more than 30 times its 2020 round — returns largely captured inside private markets, before retail investors saw a ticker. The broader pattern is worth noting: in defense, aerospace, and space, a growing share of value creation now happens before a public listing exists. If the company reaches public markets this year, much of the re-rating may already be reflected in late-stage private rounds. The more useful question for long-term investors is less about chasing a single ticker and more about understanding how capital is being allocated across the sector — and at what stage the meaningful repricing tends to occur.

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This newsletter is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results.