Peter Smith
⬤ The S&P 500 macro outlook is coming under pressure as long-term fiscal projections reveal rapidly escalating government financing costs. Interest expenses are expected to double within a decade, while healthcare spending may climb roughly 80%, Social Security around 70%, and defense approximately 20%. Current data shows U.S. net interest payments surging from about $345 billion in 2020 to nearly $970 billion by 2025.
⬤ Looking ahead, the numbers get even more concerning. Under baseline estimates, net interest costs are projected to blow past $1.5 trillion around 2030 and hit approximately $1.8 trillion by 2035. In a more pessimistic scenario, interest expenses could rocket beyond $2.2 trillion by 2035. These figures assume long-term CPI inflation hovering near 2.4%—meaning even slightly higher inflation would send spending and borrowing costs spiraling upward.
⬤ The combined growth of interest payments and major government programs is projected to outpace economic expansion, potentially increasing deficits by roughly 30%. Rising financing needs would force larger bond issuance, creating a feedback loop between fiscal expansion and inflation pressures through higher funding costs and broader price dynamics across the economy.
⬤ For SPX investors, this paints a picture of a macro environment where persistent inflation risk stays elevated as long as spending growth continues outrunning economic output.
Peter Smith
