Quantifying the Next Great Source of Passive Flows

Editor’s Note: This morning, I’m revisiting an analysis I put together last year on the Invest America Act. There are roughly 4 million individuals born in this country every year. And starting in 2026 from their birth year until age 18, they can have $5,000 invested on their behalf in an index fund annually.

That will create a lot of new stock market investors moving forward. And while every one of them may not take full advantage of this benefit moving forward, it should still act as a long-term tailwind for economic growth and the S&P 500 Index.

The $329 Billion Tailwind No One’s Talking About

• Congress quietly passed the Invest America Act earlier this year.

• Every newborn receives $1,000 invested in the S&P 500.

• Families can contribute $5,000 annually, compounding tax-free until age 18.

While the media hunts for cracks in the rally, Congress quietly poured concrete under the market’s foundation…

After a shaky start to the year, U.S. stocks have roared back to life. Since the March low, the S&P 500 Index has surged over 19%, lifting its year-to-date gain to 10.5%. May alone has delivered ten new closing highs, bringing the 2026 total to 21. Momentum is strong, breadth is improving, and yet, the financial media keeps playing the same tired tune.

Every time the market rallies, the naysayers get louder. Outlets like Bloomberg and CNBC scramble for reasons why stocks are about to crash. They treat new highs like warning signs, not milestones. So, they spotlight the negatives, hoping fear will drive clicks. But in doing so, they’re missing the real story: the catalysts that could push stocks even higher.

Take earnings. Heading into Q1 results, the consensus view was for 13.2% earnings growth. But analysts had lowered expectations ahead of the numbers, and the media pounced. They said there was no way companies could live up to expectations. But Wall Street has a habit of underestimating upside. With 94% of companies having reported, earnings are up 28.4% year-over-year, well ahead of the forecast. That’s not a slowdown. That’s acceleration.

But there’s another tailwind the media has barely noticed. Last year, Congress quietly passed a bipartisan bill with broad support from business leaders like Altimeter’s Brad Gerstner and Nvidia’s Jensen Huang. It’s called the Invest America Act. This summer, it opens up new investment accounts for more than 65 million Americans. If the numbers live up to their potential, this legislation could underpin a steady rally for the S&P 500.

But don’t take my word for it, let’s look at what the data’s telling us…

The Invest America Act is a deceptively simple piece of legislation with outsized implications. Starting January 1, 2026, every child born in the U.S. will be eligible for a government-seeded investment account—$1,000 deposited at birth, tax-exempt, and invested exclusively in low-cost S&P 500 index funds. These accounts are structured as trusts, professionally managed, and locked until age 18. The goal isn’t just financial—it’s behavioral. Give a child a stake in the market, and you give them a reason to care about growth, compounding, and ownership.

Parents, relatives, and employers can contribute up to $5,000 per year per child. That’s after-tax money, with no income phaseouts or itemized deductions required. Employers can add up to $2,500 annually without affecting taxable income. The accounts are simple by design: no stock-picking, no rebalancing, no trading. Just passive exposure to the broad market, with the compounding engine running quietly in the background.

Let’s run the numbers. The average number of children born in the U.S. each year is just over 3.6 million. Multiply that by the $1,000 government seed, and you get $3.6 billion in new capital flowing into S&P 500 exchange trade funds (“ETFs”) annually. It’s a structural bid—small in any given year, but relentless over time. And that’s before a single private dollar is added.

Now let’s scale it. If every family maxed out the $5,000 annual contribution limit, and we assume a flat age distribution across 18 cohorts, that’s 65.1 million children eligible for accounts. Multiply that by $5,000, and you get a theoretical ceiling of $329.4 billion in annual investments.

That’s not a forecast, it’s a boundary condition. But even modest uptake would be meaningful. If families contribute $2,000 per year, that’s still $132 billion in sticky, long-duration capital.

Let’s put that in perspective. From 2019-2024, the three largest S&P 500 ETFs accounted for roughly 20% of all passive fund investments. The following table lays out the average annual net inflows based on number from fund data provider ETF.com…

Based on those numbers, maximum contributions to Invest America accounts next year would more than double the average annual total that’s flowed into S&P 500 ETFs over the past five years. It would eclipse the record $237 billion from 2024—and the $210 billion invested so far this year.

The accounts are nonforfeitable, professionally managed, and restricted to S&P 500 ETFs. That means no style drift, no speculative allocation, and no behavioral leakage. The money is locked until age 18, except for qualified rollovers. Withdrawals are taxed at favorable rates if used for education, housing, or entrepreneurship. Otherwise, ordinary income rules apply. But the real value isn’t in the tax treatment, it’s in the habit formation.

For financial institutions and Registered Investment Advisors, this opens new terrain. Custodial onboarding, contribution matching, and financial literacy programming are all in play. So is the opportunity to build long-term relationships with families who now have a tangible reason to engage early. The accounts are simple, but the implications are profound: a new generation of investors, growing up with equity exposure from day one.

Bottom line: this isn’t just a savings plan. It’s a structural shift in how we think about opportunity, ownership, and the investing landscape. The Invest America Act turns compounding into policy, gives every child a front-row seat to the American growth story, and creates a steady tailwind for the S&P 500.

Five Stories Moving the Market:

The U.S. and Iran are within reach of an agreement to wind down the war, according to Treasury Secretary Scott Bessent; but President Trump has yet to sign off on it, and the White House wants a deal that satisfies several key conditions – WSJ. (Why you should care – a deal would reopen the Strait of Hormuz to international shipping traffic, easing upward pressure on oil prices and inflation growth)

Taiwan's Foxconn, the world's largest contract electronics maker, has "immense confidence" in ​its growth momentum because of soaring AI ‌demand, according to Chairman Young Liu; he said capital spending plans by cloud service providers boosts his optimism about future growth – Reuters. (Why you should care – Foxconn is Nvidia’s biggest server maker)

Dell Technologies shares gained almost 40% in extended trading after the hardware maker gave a better-than-expected outlook for annual sales, fueled by demand for servers that power artificial intelligence work; Revenue in the fiscal year ending in January 2027 will be about $167 billion, including $60 billion from the sale of AI servers, compared to the prior revenue outlook of about $140 billion – Bloomberg. (Why you should care – management said it sees no signs of AI demand slowing)

One of new Federal ​Reserve Chairman Kevin Warsh's favorite inflation measures came in cool again in April; the Dallas Fed’s trimmed mean measure showed price growth rose 2.3% last month compared to 2.4% in March – Reuters. (Why you should care – the result support’s Warsh’s belief that the pace of inflation growth is improving)

U.S. gross domestic product rose at a downwardly revised 1.6% seasonally adjusted annual rate during the first quarter, according to the Commerce Department; economic output was previously estimated to have risen at 2% - WSJ. (Why you should care – the result shows output is trending below the long-term average, easing pressure on the Federal Reserve to respond to high oil prices)

Economic Calendar:

Japan – Tokyo CPI for May

Japan – Industrial Production, Retail Sales for April

Japan – Household Confidence for May (1 a.m.)

Germany - Import Price Index for April (2 a.m.)

France - Consumer Spending for April (2:45 a.m.)

France - GDP for Q1 (2:45 a.m.)

France - CPI (Preliminary) for May (2:45 a.m.)

Spain - CPI (Preliminary) for May (3 a.m.)

Germany - Unemployment for May (3:55 a.m.)

Eurozone – Private sector loans for April (4 a.m.)

BoE’s Bailey (Governor) Speaks (4:20 a.m.)

Fed’s Schmid (Kansas City, Non-Voter) Speaks (6:50 a.m.)

Germany - CPI (Preliminary) for May (8 a.m.)

U.S. – Retail and Wholesale Inventories for April (8:30 a.m.)

Canada – GDP for Q1 (8:30 a.m.)

Fed’s Bowman (Board Member) Speaks (9:10 a.m.)

U.S. – Chicago PMI for May (9:45 a.m.)

U.S. - Baker Hughes Rig Count (1 p.m.)

U.S. - CFTC’s Commitment of Traders Report (3:30 p.m.)

Fed Releases Balance Sheet Updates on Commercial Banks (4:15 p.m.)