Animal Spirits Podcast – EP. 427 "State of the American Investor"

Hosts: Michael Batnick & Ben Carlson
Date: August 27, 2025

Episode Overview

In this episode, Michael and Ben dig into the latest market outlook as summer winds down. Drawing from recent market action, economic data, and a new Fidelity survey, they analyze the mood and behavior of American investors today. The conversation spans broadening market participation, generational differences in investing, the psychology driving financial markets, investing trends (from options to crypto), and the future risks and opportunities for investors across the board.

Key Discussion Points & Insights

1. Market Sentiment and Participation in 2025

• Summer to Fall Market Vibe: The episode starts on a light note about upcoming travel and conferences, with Michael and Ben sharing banter about their luck at casinos, before segueing into more serious market observations.
• Stock Market Reactions:
  • Ben notes the apparent oddity of stocks rallying on news of a slowing labor market, attributing it to expectations for Fed rate cuts ([03:00]).

    "The stock market was up... because Jerome Powell sees the labor market slowing down, which seems like an odd thing to happen..." – Ben [03:03]

  • Michael clarifies that savvy investors now widely understand this counterintuitive relationship.

    "...in the year 2025, it's well understood, there's no more mysteries about why stocks rally." – Michael [03:32]

• Breadth Improving:
  • Michael highlights data showing broader participation in the market.

    "Grant tweeted, more stocks are trending higher, not fewer... 59% of the S&P 500 names are above both their 50-day and 200-day averages..." – Michael [04:27]

  • The “90/90” up-volume day is cited as bullish, referencing breadth and historic probabilities for gains post-event ([04:39]).

2. Cycle Analysis: Are We in 1996 or 1999?

• Investor Anxiety & 'Bubble Talk':
  • The hosts reference Tom Lee’s recent bullish interview and compare today’s market to the late '90s.

    "...Is this 1996 or is this 1999? I feel like that's where people are starting to go to." – Ben [06:32] "So people are already worried in '96. So that's kind of where we are. And I guess that's what Tom Lee's point would be. It's '96, not '99." – Ben [07:19]

• Concerns About Sustained Market Gains:
  • Despite strong returns, both hosts question the sustainability of current valuations, especially in tech/growth, pondering rotation into left-behind sectors ([07:55], [08:22]).
• Push and Pull Scenario:
  • Michael lays out the "fork in the road" for markets: potential bullish drivers (rate cuts, AI, broadening rally) vs. real-world negatives (slowing labor market, consumer strain, higher costs).

    "So there's a push and pull." – Michael [10:13]

3. Rate Cuts and Historical Performance

• Dissecting the Impact of Rate Cuts:
  • Ben references research showing S&P 500 performance following rate cut cycles is essentially average – about 9% annually.

    "...if you look at enough of them essentially tell you that it's about average most of the time things go up." – Ben [11:04]

  • Michael stresses the importance of market psychology and recurring bullish behaviors.

    "...the psychology in the market really is. It's always the same." – Michael [11:43]

4. Value vs. Growth – What Happened to Value Investing?

• Rolling Underperformance of Value:
  • They discuss value vs. growth cycles, the long US value drought, and how modern market structure may disadvantage value stocks ([12:40], [13:30]).
  • Michael shares a striking stat from Adam Parker: 77% of mega-cap market cap is classified as 'growth' today, vs. 3.9% 'value' ([15:05]-[15:56]).

    "Today, 77% of the mega cap universe is growth. Only 3.9% is value. Wow, isn't that wild?" – Michael [15:53]

• International Value is Different:
  • Value investing remains more effective abroad, highlighting the US as an outlier ([16:15]-[16:18]).

5. Options Mania and Yield Strategies

• Options Volume at New Highs:
  • Reflecting on Wall Street Journal data, options (especially calls) hit record volumes; both hosts agree this is a combination of speculation and yield-seeking ([18:18]-[19:24]).

    "...it is a combination of the yield Max Degens and the Boomer Candy investors." – Michael [18:56]

• Skepticism of Yield-Focused ETFs:
  • Michael and Ben discuss research by Jeff Ptak showing "YieldMax" ETFs (based on high-yield strategies for popular stocks) underperform simply holding stocks and cash ([19:24]–[21:44]).

    "The yield on these ETFs that they tout appears to be a financial sleight of hand." – Ben, quoting Jeff Ptak [20:28]

6. State of the American Investor: Generational Shifts (Fidelity Survey)

• Younger Investors: More Optimistic, Risk-Tolerant, and Sophisticated
  • Newer investors expect higher future returns and are more familiar with advanced strategies (covered calls, crypto), whereas older investors are more conservative ([22:51]-[25:16]).

    "Younger investors are far more sophisticated, like orders of magnitude than previous young people, myself included." – Michael [27:37]

• Crypto Divide:
  • Only 23% of older investors own crypto vs. 56% of younger ones ([25:38]).
• Behavior Gap Shrinking:
  • Access, low-fee trading, and ubiquitous information are dramatically improving outcomes for young investors as compared to earlier eras ([28:51]–[29:21]).

    "I think a lot of younger investors are absolutely trouncing the market, just destroying it." – Michael [29:21]

7. Changes in Access, Technology, and Market Structure

• The Impact of Digital Evolution:
  • Ben reads from a Substack essay describing the hurdles faced by retail investors in the pre-internet era, contrasting with today's seamless, information-rich landscape ([29:57]–[31:33]).

    "...in the '90s, commissions were like $50 a trade. And...a decent sized percentage of the portfolio. ...it's a totally level playing field. It's kind of crazy." – Ben [30:13]

• Institutional Challenges:
  • Institutions now find it much harder to outperform, partly because individual investors are no longer at a disadvantage ([31:18]-[31:31]).

8. Consumer Economy: Inflation, Fast Food, and the Shrinking Dollar

• Inflation's Unequal Hit:
  • McDonald’s and other fast-food chains losing low-income customers to price hikes. Middle/upper income unaffected ([34:29]-[34:98]).

    "...low income consumers declined by double digits. So they're getting hit really hard by these price increases." – Michael [34:29]

9. AI and the Job Market

• Long-Run Optimism:
  • Seth Godin’s commentary frames technological disruption as inevitable but ultimately opportunity-creating over centuries ([35:03]-[36:12]).

10. Crypto in the Real World

• MicroStrategy’s Leverage Play:
  • Michael reviews MicroStrategy’s evolving capital structure as a case study in financial engineering and crypto exposure ([39:07]–[44:00]).

    "I don't know if it's going to work forever. I can't see the future. But I think that people are still not giving enough credit to what he's doing." – Michael [40:48]

• General Apathy/Exclusion:
  • Despite headlines, 82% of Americans don’t own any crypto ([38:25]).

11. Housing & Real Estate: Rates and Resilience

• Mortgage Spreads & ARM Myths:
  • Detailed discussion on mortgage rates, spreads to Treasuries, and why the market hasn’t been as vulnerable as feared ([45:50]-[48:35]).
• Durability of the Real Estate Industry:
  • Ben argues the real estate sector remains undisturbed by technology; business models and commissions are sticking ([48:35]-[49:31]).

12. Institutional Investing: Liquidity Fears in Endowments

• Ivy League "Groupthink":
  • Reviewing a Jason Zweig piece about endowment allocations, the hosts criticize massive illiquid investments and herd mentality ([50:12]-[52:07]).

    "This is like the worst example of groupthink ever." – Michael [51:38]

13. Wealth Inequality, Saving for Kids, and Family Support

• Trend Toward Supporting Adult Children:
  • 60% of parents now help adult kids financially. The hosts discuss practical tools for intergenerational support, the impact on wealth inequality, and the realities of modern adulthood ([54:08]-[57:39]).

    "Good, save for your kids. It's great but yes, of course, ...the yachts get lifted a lot quicker. It just is." – Michael [56:23]

Notable Quotes & Memorable Moments

• On Investor Psychology:

  "The psychology in the market really is... always the same." – Michael [11:43]

• On Breadth and Bullishness:

  "Brett is confirming the bull. ...when the market is doing something that might be counterintuitive, as you put it, go with the market." – Michael [04:39]

• On Generational Differences:

  "Newer investors are more familiar with advanced income generation strategies, while tenured investors are more familiar with more traditional strategies." – Michael [24:50]
  "I think this group, this cohort of younger investors, genuinely looks very different than previous generations." – Michael [27:37]

• On Liquidity and Endowment Groupthink:

  "This is like the worst example of groupthink ever." – Michael [51:38]

• On Real-Time Data & Accessibility:

  "It's a totally level playing field. It's kind of crazy." – Ben [31:33]

• MicroStrategy/Bitcoin Risk:

  "Their reasoning might sound cuckoo, but they said what they were going to do, they did it." – Michael [43:37]

Timestamps for Important Segments

• Broadening Market Participation & Rate Cuts: [03:00] – [11:50]
• Value vs. Growth in Today’s Market: [12:40] – [16:18]
• Options Mania & YieldMax ETFs: [18:18] – [21:44]
• Fidelity 'State of American Investor' Survey (Gen Differences): [21:51] – [29:24]
• Technological Change in Retail Investing: [29:57] – [31:33]
• Consumer Strain: Fast Food Inflation: [34:25] – [35:03]
• Crypto Ownership, MicroStrategy & Market Impact: [38:25] – [44:00]
• Mortgage Rates & Real Estate Sector: [45:50] – [49:31]
• Ivy League Endowment Liquidity Risks: [50:12] – [52:07]
• Saving for Kids & Intergenerational Support: [54:08] – [57:39]

Closing Thoughts

Michael and Ben wrap up the episode with recommendations, some lighthearted pop culture talk, and observations on how both investing and consumption have become easier and more information-rich. Throughout, their tone remains approachable and candid, making complex trends in markets and investor behavior both understandable and compelling.

For listeners who missed the episode:
This deep-dive provides a clear snapshot of where markets—and the American investor—stand today, equipping you with the historical perspective, data points, and market psychology that drive real-world investment outcomes.