Federal Spending Superboom Cycle
Track spending, inflation, peace, and technology to identify secular booms
- Difficulty
- Advanced
- Time to result
- ~ongoing to results
- Steps
- 7
- Confidence
- 91%
The Federal Spending Superboom Cycle treats major market advances as products of historically significant spending regimes rather than fixed-duration calendar cycles. Analysts first identify an event such as war, a national emergency, or a large infrastructure program that pushes federal spending above trend. They then examine the resulting inflation and loss of purchasing power, followed by the transition from conflict or crisis toward stability. A superboom becomes more credible when a culturally enabling, paradigm-shifting technology supplies new investment opportunities and productivity gains. The output is a long-range view of the secular market regime and the sectors most likely to receive spending. The framework does not eliminate volatility; it distinguishes a durable expansionary backdrop from temporary rallies within a secular bear market.
Origin
Jeff Hirsch explained that his father, Stock Trader's Almanac founder Yale Hirsch, identified the pattern in 1976 by studying spending, inflation, war, peace, and subsequent market advances. Jeff later updated it to incorporate post-9/11 conflicts, COVID-era spending, and enabling technologies. Extracted from Masters in Business.
Core principles
- 01Exceptional federal spending matters more than the stated reason for it
- 02Inflation can translate nominal economic expansion into higher market levels
- 03The transition from conflict toward peace can help begin a secular boom
- 04Paradigm-shifting technology strengthens and extends the cycle
- 05Historical events provide better cycle boundaries than arbitrary time intervals
How to run it
- 1
Find the spending shock
Identify a war, emergency, infrastructure program, or policy package that lifts federal spending substantially above its established trend.
Pro tip Compare the spending with GDP and prior national mobilizations rather than considering the nominal dollar amount alone.
Watch out Do not require a conventional shooting war; a national emergency can generate a comparable fiscal response.
- 2
Trace the inflation channel
Determine whether the spending is increasing demand, weakening purchasing power, and producing sustained inflationary pressure.
Pro tip Use CPI and purchasing-power trends alongside a logarithmic long-term market chart.
Watch out Do not assume every brief inflation spike establishes a secular cycle.
- 3
Anchor the cycle to events
Use identifiable historical events to mark the beginning and end of the spending regime instead of imposing an arbitrary number of years.
Pro tip Look for formal resolutions, withdrawals, emergency declarations, or policy turning points.
Watch out Market lows and confirmation through new highs may occur at different times.
- 4
Assess the peace transition
Evaluate whether the conflict or emergency is ending and whether resources can shift toward productive domestic activity. Treat this transition as a potential catalyst for a new secular phase.
Pro tip Distinguish reduced direct involvement from continued geopolitical spending.
Watch out Saber rattling alone does not establish the cycle without meaningful spending.
- 5
Identify the enabling technology
Find a paradigm-shifting technology that can absorb investment, create industries, and broaden productivity gains during the expansion.
Pro tip Include ancillary requirements such as energy, infrastructure, cybersecurity, and specialized equipment.
Watch out Avoid treating every fashionable product as a society-wide enabling platform.
- 6
Select beneficiary sectors
Map fiscal priorities and the enabling technology to sectors receiving durable capital flows, then build diversified long-term exposure.
Pro tip Look for overlap between government demand and commercial adoption.
Watch out A favorable secular thesis does not justify excessive concentration in speculative companies.
- 7
Reassess the forecast
Update the long-term market projection as spending, inflation, conflict, technology, and new-high confirmation evolve.
Pro tip Use a range of plausible annual returns rather than relying solely on a single index target.
Watch out Treat the forecast as a regime hypothesis, not a guaranteed endpoint.
In the wild
The CARES Act and related programs represented an unusually large share of GDP, comparable with fiscal mobilizations associated with major wars. The spending was followed by substantial inflation, while AI, data centers, defense technology, and energy infrastructure emerged as potential recipients of continued investment.
→ The model interprets the post-COVID period as a continuation or reinforcement of the superboom rather than requiring a conventional war to explain it.
Jeff Hirsch used the wars in Afghanistan and Iraq as the spending-and-conflict phase, then watched for reduced US combat involvement and market confirmation through new highs. The framework separated the ultimate market low from the later confirmation that the secular bear phase had ended.
→ The analysis supported a long-range Dow target that initially appeared implausible but was reached ahead of the forecast horizon.
Common mistakes
Using fixed-length cycles
Assigning an arbitrary 17- or 18-year duration ignores the historical events that actually initiate and end spending regimes.
Requiring a hot war
The mechanism depends on exceptional federal spending, so emergencies and large policy programs can matter even without direct military conflict.
Treating the forecast as short-term timing
The framework describes a secular backdrop and cannot predict every correction, valuation reversal, or tactical entry point.
Is it for you?
Best for
It is best for long-term investors making decade-scale market and sector allocation decisions.
Not ideal for
It is not ideal for short-term market timing or precise forecasts of corrections and entry points.
From the transcript
“It's not just war but spikes like you just mentioned in federal spending like we had in COVID where it goes above trend.”
“massive government spending driving inflation and superbooms.”
“the culturally enabling paradigm shifting technology which AI and all of its related ancillary items that we that we spoke about are part of”
From the episode
Jeff Hirsch on Why Big Federal Spending Plus Inflation = “Superbooms”