Animal Spirits Podcast – Episode 410: The Most Confusing Rally of All Time
Release Date: April 30, 2025
Hosts: Michael Batnick and Ben Carlson
Produced by: The Compound
1. Introduction and Chicago Office Announcement (00:53 - 02:20)
Michael Batnick and Ben Carlson kick off the episode by announcing the opening of Ritholtz Wealth Management's new Chicago headquarters at the Salt Shed. They express excitement about the new space and hint at upcoming events, including a "compound and friends" gathering with Kunal Kapoor, CEO of Morningstar, scheduled for June 3rd at 6 PM. The hosts emphasize their intent to engage more with the Chicago community, addressing listener requests for events catering to specific interests like Barrett's fans.
Notable Quote:
Michael Batnick (02:00): “And someone asked for the Barrett's fans. Someone said, I might not be able to make it to this one. And I said, well, now that we have this Chicago office, we're going to be doing more stuff there.”
2. The Enigmatic Stock Market Rally (02:38 - 05:39)
The conversation shifts to the current stock market rally, which both hosts find perplexing given the prevailing economic uncertainties such as tariffs and political instability. Ben Carlson points out that despite the NASDAQ reaching new highs, the S&P 500 remains nearly flat, down only 1.5% for the month. He expresses skepticism about the sustainability of this rally, questioning whether it aligns with earnings sentiment and valuation trends.
Notable Quote:
Ben Carlson (03:10): “The stock market is now back to where it was post Liberation Day. In fact, the NASDAQ is even higher. And is the S and P higher? Let's just say it's right around there. So it's close.”
Michael Batnick (04:14): “The market rarely makes sense.”
3. Historical Context: Comparing to COVID-19 Rally (04:30 - 05:39)
Michael Batnick draws parallels between the current market behavior and the market surge during the early stages of the COVID-19 pandemic. He notes that unlike the previous rally, this time the government isn't deploying massive fiscal measures ("the government is not coming to the rescue"), adding uncertainty to the market's ability to sustain its highs.
Notable Quote:
Michael Batnick (04:30): “And I think that's the comparison that people are trying to make here that, oh, the stock market's forward looking, everything's going to be okay.”
4. Technical Indicators and Market Psychology (07:32 - 10:32)
Ben introduces the concept of a "Zweig Breadth Thrust" (ZBT), a technical indicator signaling a market bottom when there's a rapid shift from panic selling to buying within a short timeframe. He cites Ryan Dietrich's research showing that historically, such patterns have led to significant market gains over the next 6 to 12 months, with a 100% success rate in his data set.
Notable Quote:
Ben Carlson (07:32): “Ryan Dietrich has a chart showing all of these instances. And the market was higher 100% of the time, both six and 12 months later.”
Michael raises the point that markets today move faster, potentially challenging the applicability of historical indicators.
Notable Quote:
Michael Batnick (10:32): “My devil's advocate here would be just that markets move faster than ever.”
5. Economic Indicators and Potential Recession (10:58 - 21:58)
The hosts delve into the likelihood of an impending recession, examining signals like layoffs, declining demand in sectors like airlines (e.g., UPS laying off 20,000 workers), and weakening consumer sentiment. They discuss the disconnect between Wall Street's resilience and Main Street's struggles, highlighting how decreasing import volumes and empty shelves may signal broader economic downturns.
Ben emphasizes that hedge funds are reducing their exposure, possibly due to risk limits rather than fundamental shifts, suggesting a cautious outlook.
Notable Quote:
Ben Carlson (15:24): “Because people want to figure out who's the dumb money here? Is there dumb money or is this just completely different time horizons?”
An email from a small business owner underscores the tangible impacts of tariffs and economic uncertainty, predicting a recession as businesses cut costs and lay off workers.
Notable Quote:
Ben Carlson (28:12): “Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.”
6. Tariffs and Their Impact on Businesses and Consumers (22:28 - 34:22)
Michael Batnick highlights a Wall Street Journal report where major retailers like Walmart, Target, and Home Depot warn about the negative effects of tariffs, including disrupted supply chains and higher prices. Amazon's initiative to transparently display tariff-induced costs alongside product prices is praised as a positive step to prevent companies from hidden price hikes.
Ben Carlson discusses the immediate impacts, such as empty shelves for products like baby strollers, toys, and infant furniture imported from China, potentially leading to consumer frustration and altered purchasing behaviors.
Notable Quote:
Michael Batnick (22:28): “And guess what else it's going to do... that's going to help with the political pressure.”
Ben Carlson (34:22): “Well, I don't see how an aggregation of these actions won't cause a recession.”
7. Investor Behavior: Retail vs. Hedge Funds (15:54 - 27:43)
Drawing from a Wall Street Journal article, Michael and Ben explore the shift in investor behavior where hedge funds have sold over a trillion dollars more shares than they've purchased this year, while individual investors continue to net purchase around $50 billion monthly. This divergence raises questions about the confidence of institutional investors versus retail participants.
Michael suggests that hedge funds may be constrained by risk limits rather than reacting to fundamental changes, indicating a nuanced landscape of investor strategies.
Notable Quote:
Michael Batnick (30:14): “Because rich people always have their jobs. But in general, so long as people have their jobs, they will keep spending money.”
8. Surveys and Wealth Inequality Insights (44:06 - 47:23)
The hosts discuss recent surveys highlighting perceptions of historical events and shifts in family size preferences. Notably, a Gallup survey reveals an unexpected rise in the ideal number of children for families, contrasting with the increasing median age of first-time homebuyers.
They also touch upon wealth inequality, citing data that the top 0.1% of households now own 50% of the stock market, while the bottom 50% own just 1%. The concentration of wealth among billionaires is underscored, with implications for societal and economic dynamics.
Notable Quote:
Ben Carlson (46:58): “The bottom 50% is 2,000 billionaires. That's crazy.”
9. The Rise of AI and Its Impact on Jobs (38:48 - 43:56)
Michael and Ben discuss the rapid integration of AI technologies, particularly ChatGPT, in everyday applications. They explore how AI is transforming industries by enhancing efficiency but also posing challenges to traditional roles, such as financial analysts. The conversation highlights both the transformative potential and the disruptive threats posed by AI advancements.
Notable Quote:
Ben Carlson (40:09): “It's amazing. And to think that it's going to be everywhere in everything in not a long period of time, it's remarkable.”
10. Personal Anecdotes and Lighthearted Segments (52:17 - 60:37)
The hosts share personal stories, including experiences at conferences, movie preferences, and the evolving dynamics of engaging with media and technology. They reflect on societal changes, such as younger generations' attitudes towards work-life balance and the integration of technology like AI in daily life.
Michael recounts attending a conference in Columbus where he delivered a speech on his new book, "Risk and Reward," highlighting the typical interactions with engaged audience members.
Notable Quote:
Michael Batnick (57:58): “Having kids totally helped shape me in that way of not concerning myself with that stuff as much anymore.”
11. Upcoming Events and Closing Remarks (60:37 - End)
Concluding the episode, Michael and Ben reiterate their upcoming events in Chicago, encouraging listeners to join them at the Morningstar conference on June 25th at Navy Pier. They also promote their Exhibit A newsletter, offering subscribers timely charts and analysis.
Notable Quote:
Ben Carlson (60:12): “What if the lows that we put in two weeks ago, good for a little while, maybe not, but I don't know.”
Conclusion
In this episode of Animal Spirits, Michael Batnick and Ben Carlson navigate the complexities of a baffling stock market rally amidst economic uncertainties. Through a blend of technical analysis, economic indicators, and personal insights, they provide listeners with a comprehensive understanding of current market dynamics and potential future scenarios. The discussion underscores the importance of nuanced perspectives in times of volatility and the interplay between market psychology and tangible economic factors.
For those interested in the intricate dance between Wall Street resilience and Main Street vulnerabilities, as well as the broader implications of tariffs and AI advancements, this episode offers valuable insights and thought-provoking discussions.
Links and Resources:
- Exhibit A Newsletter: exhibitA4advice.com – Topical charts and analysis delivered every Thursday morning.
- Upcoming Events:
- Compound and Friends with Kunal Kapoor – June 3rd, 6 PM
- Morningstar Conference – June 25th, Chicago Navy Pier
- Innovator ETFs: innovatoretfs.com – Learn about Buffer ETFs and more.
Disclaimer: All opinions expressed by Michael Batnick and Ben Carlson are solely their own and do not reflect the opinions of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions.