Animal Spirits Podcast: Did the Market Just Top? (EP. 434)
Date: October 15, 2025
Hosts: Michael Batnick and Ben Carlson
Theme: The episode explores the perennial question of whether the market has just hit a peak. Michael and Ben break down the dangers of market timing, look at recent volatility, explore arguments around "bubbles" in tech and AI, discuss wealth inequality, the “investor class,” market sentiment, and the role of leveraged ETFs and private credit. They wrap with assorted cultural and personal recommendations, maintaining their trademark blend of accessible expertise and irreverence.
Main Theme and Purpose
The episode centers on whether the recent downturn marks the top for markets or just another blip. Michael and Ben walk through their analytical process, stress the unpredictability of market peaks, debate bubble narratives, and reflect on long-term shifts in investor behavior. Along the way, broader themes like earnings, concentration in large-cap stocks, wealth inequality, and changing investment trends take center stage.
Key Discussion Points & Insights
1. Can Anyone Really Call the Top?
- On the Futility of Top-Calling:
Ben: “People are going to try to call the top. I don’t think anyone’s going to be able to do it. If they do, they’re just going to be lucky.” (02:37) - Past Examples and Counterpoints:
Michael brings up Michael Burry's 2005–06 bearishness—spot-on, but atypical and different from trying to call a broad market top.
2. Market Valuations and Earnings Matter Most
- Valuations Alone Aren’t Sufficient:
Ben references a forward PE chart from the dot-com era to show that valuations can look “peaked” many times before the actual top. - Earnings Surprises Drive Bear Markets:
Michael: “Bear markets happen when the projected earnings are way higher than what actually happens… If you give me one indicator for the future, it’s where do earnings come in relative to where people think earnings are going to be?” (06:51) - Timing of Market/Earnings Peaks:
Ben: “History shows the stock market is not very good at predicting tops in earnings.” (07:45)
3. Volatility and Complacency
- Recent Calm and Abrupt Moves:
Michael notes 33 straight days of S&P 500 trading in a 1% range before the Friday drop.
Ben: “It’s been frankly way too easy since April. We hadn’t even had a 3% drawdown until now.” (08:34)
4. Market Concentration and the ‘AI Bubble’
- Concentration is Typical of Bull Runs:
Market cap weight of the top 10% of US stocks at all-time highs. Ben and Michael reference Mobison’s work showing concentrations increase in bull markets. - Are We in a Bubble?
Ben, on tech valuations: “These companies are just bigger and better than companies in the past. That’s it.” (19:48) - Comparison with History:
Michael: “Valuations today compared to the tech bubble, Japan bubble, Nifty 50—they’re way lower. But today’s giants dwarf prior bubbles in size.” (19:44)
5. Wealth Inequality & the Expanding Investor Class
- Stock Market Participation Rising:
Ben: “A majority of low earners have an investment account… More young and low-income Americans are investing than ever before.” (24:47) - Debates on Inequality:
Michael: “Wealth inequality will never be better than it is today because of compound interest… But more importantly, the absolute level of wealth for the bottom X percent matters most.” (26:35)
6. Leverage, ETFs, and Risk Appetite
- Rising Use of Leverage:
- 25% of new ETFs over the last six months involve leverage.
Ben: “This is why people need a slap on the wrist—a little more than a Friday flush eventually.” (32:13)
- 25% of new ETFs over the last six months involve leverage.
- Degenerate Themes Outperforming:
Retail-heavy, “degen” stocks (memes, speculative tech) crushing professional strategies.
7. Cash on the Sidelines: A Fallacy
- Context Matters:
Money market fund levels are high, but as a percent of market cap, they're not rising. - Household Health:
Ben: “Households have a dollar in cash for every dollar of debt—the most deleveraged since the early 1990s.” (38:21)
8. Private Credit & Alternative Investing
- Skepticism about Systemic Risk:
Michael: “I don’t think private credit is a bubble...there will be more blowups as it grows, but it’s not systemic.” (50:49)
9. Crypto & Leverage Blowups
- Extreme Leverage Amplifies Volatility:
Massive crypto liquidations occurred on a single risk-off day.
Ben: “There was literally one down day in the stock market and it evaporated crypto.” (47:58) - Lessons in Speculation:
Michael: “If you make millions on 50x leverage, you can go to zero on the same thing.” (49:06)
10. Household Wealth: House Rich, Cash Poor
- Rise in “Millionaires” Driven by Real Estate
Many recent millionaires are “house rich,” with wealth tied up in illiquid assets.
Notable Quotes & Memorable Moments
- On Calling the Market Top:
Ben: “If you've been saying it for 24 months, then get out of here.” (03:01) - Bubble Skepticism:
Michael: “This idea that there's going to be an 80% washout and these stocks won't recover—I view that as highly unlikely, actually.” (22:10) - On Wealth Inequality:
Michael: “If Elon Musk sold all his stock and set it on fire, inequality would go down, but it wouldn’t make anyone’s life better.” (26:35) - On the Accessibility of Investing:
Ben: “People who don't make a lot of money have the ability to invest in multi-trillion dollar corporations...It's a miracle.” (27:41) - Leverage Mania:
Ben: “People really want this stuff, huh? See, this is why people need a slap on the wrist...a little more than a Friday flush eventually.” (32:13) - On Crypto Leverage:
Michael: “You're using 50x leverage on crypto—I mean, come on, use your head.” (50:05) - Market Participation Expanding:
Ben: “There are way more people invested in the stock market. Among newer investors, 45% has put $5,000 or more into their accounts.” (24:47)
Timestamps for Important Segments
- 02:22 – The futility of trying to call market tops
- 04:33 – Why forward PE ratios don't tell the whole story
- 06:51 – Earnings' primacy in market direction
- 08:45 – Recent calm and sudden market drops
- 12:14 – Market concentration and its historical context
- 18:19 – US dominance in global corporate scale
- 19:44 – Tech, AI, “bubble” talk, and company size
- 24:47 – Stock market participation among low-income/young households
- 32:13 – Leverage and speculative ETFs
- 37:20 – “Cash on the sidelines” fallacy explained
- 38:21 – Household balance sheets and resilience
- 47:23 – Crypto’s leveraged unwinding
- 50:49 – Thoughts on private credit and risk
- 53:09 – Private vs. public company revenue comparison
- 57:34 – Hollywood’s struggles & flop “Tron” movie example
- 58:37 – Discussions of phone/social media addiction and solutions
- 62:13 – Abnormal Returns’ 20th anniversary shout-out
- 63:13 – Book & show recommendations
Recommendations & Culture
- Book:
Both hosts recommend Breakneck by Dan Wang—on US/China competitiveness, lawyers vs. engineers, and the contours of progress. (63:13–65:49) - Shows:
Ben shouts out The Lowdown (Hulu, with Ethan Hawke), Michael lauds Black Rabbit and talks horror movie favorites (67:16). - Personal:
Michael tries a “brick” device to restrict phone/social media use; both reflect on Twitter addiction and the importance of being present with family instead of “doomscrolling.” (59:04)
Tone & Speaker Dynamic
- Accessible, Irreverent, and Data-Driven:
The hosts balance technical analysis, intuition, and market history while trading light jabs and self-deprecating asides. - Critical but Positive:
They challenge negative narratives about wealth inequality and bubble-mania without dismissing real dangers. - Quotable & Conversational:
Recurring segments like “no crying in the casino,” slap-on-the-wrist warnings, and debates over semantics (e.g., “when does a bull market start?”) keep things lively.
Conclusion
Did the market just top? The answer, as Michael and Ben frame it, is always colored by hindsight. Instead of obsessing over calling turning points, they urge listeners to focus on earnings, think historically, ignore maximalists and perma-bears, and appreciate that new market participants and resilient households are positive secular trends. Bubbles may or may not be at hand—but, as always, the future belongs to pragmatic, long-term investors.