Markets Hit Highs, But the Story Is Just Beginning | Hatem Dhiab

Markets Hit Highs, But the Story Is Just Beginning

By: Hatem Dhiab

The S&P 500 closed Friday at another all time high, its third consecutive weekly gain, with the Semiconductor Index rallying roughly 39% this month alone. Sentiment, by our measure, is at its highest level since December 2024. Yet the war is not over. Crude is back above $96, peace talks with Iran have stalled, and forward volatility has settled at higher plateaus relative to pre-war levels.

The market is balancing a geopolitical left tail against a technological right tail. The right lens for this rally, in our view, is what LPL Research framed this week as the “American Industrial Renaissance,” because the parabolic move in semis is not just speculation. It is partly the equity market discounting a real structural shift.

The Structural Backdrop

For four decades, U.S. manufacturing as a share of total employment shrank from over 20% in 1980 to under 8% in 2025. The data now suggests the rhetoric of revival has substance. Annualized U.S. private manufacturing construction spending has surged from roughly $75 billion in early 2021 to nearly $200 billion today. Manufacturing capacity has expanded month over month for 51 straight months. Imports from China have fallen from 22% to under 9% of the total. This is not wholesale deglobalization, but a strategic realignment, and three converging structural forces are driving it, with a fourth catalyst arriving this week:

1. Supply chain resilience is real and measurable. Notably, 88% of 2024 reshoring jobs were in the tech sector, with the largest capacity contributions from computer products and electrical equipment. This is high-tech manufacturing, where automation means capex does not translate proportionally into employment.

2. Bipartisan industrial policy is unusually durable. Biden-era CHIPS, IRA, and IIJA created the demand signal. Trump 2.0 tariffs and domestic-content rules are now raising the cost of producing offshore. Different means, similar ends, and a policy regime that is unusually broad for this era of polarization.

3. U.S. energy is a tangible cost advantage. Excluding recent Iran-driven spikes, EU natural gas has averaged a roughly 175% premium to U.S. prices over the last three years, and Asian LNG closer to 200%. EU industrial power costs about twice U.S. levels. For chemicals, steel, fertilizers, and semiconductors, this is a real input-cost edge.

4. Mag 7 earnings will test the AI capex thesis this week. Microsoft, Alphabet, Meta, and Amazon report Wednesday; Apple Thursday. The four hyperscalers are projected to spend $645 billion on AI infrastructure in 2026, up 56% year over year. Through Friday, 84% of S&P 500 reporters had beaten estimates, with blended Q1 growth tracking near 15%. The bar is high.

What This Means for Portfolios

The direct beneficiaries are concentrated. Industrials and materials with high domestic revenue, semiconductor and electrical equipment makers, and energy-advantaged sectors tied to U.S. power and grid investment are the cleanest thematic exposures. SMID-cap industrials and materials capture the buildout most directly, alongside selected large-caps with the right domestic mix.

Our tactical view is unchanged. It is a bull market, the primary trend is higher, and we want to remain positioned. We are also clear-eyed about two near-term risks: blowoff dynamics in parts of the market that have moved parabolically, and ongoing energy supply tail risk from Iran. The right posture is neither chasing nor fighting. Stay invested, be selective with new dollars, and respect the elevated readings on sentiment and momentum. Resolution and progress reward those who are already invested, not those waiting for a perfect entry.

The bigger picture is constructive. Headlines will continue to oscillate between Iran and the AI capex story, but underneath, the structural case for U.S. equities (anchored by reshoring, the energy advantage, and the AI buildout) is improving rather than deteriorating. This week’s Mag 7 prints will tell us a great deal about whether the AI thesis can carry the next leg, and we will report back.

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Hatem Dhiab is a Financial Advisor of Santa Monica, California-based Gerber Kawasaki Inc., an SEC-registered investment firm with approximately ~$4.09B billion in assets under management and advisement as of 12/31/25.  The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss. Readers shouldn't buy any investment without doing their research to determine if the investments are suitable for their situation. “All investments involve risk and one should consult a financial advisor before making any investments. Past performance is not indicative of future results." Every situation is unique and you should consult a tax professional and a financial advisor before making any decisions.