Animal Spirits Podcast – Episode 422: What is Upper Middle Class?
Release Date: July 23, 2025
Hosts: Michael Batnick and Ben Carlson
Produced by: The Compound

Introduction

In Episode 422 of the Animal Spirits Podcast, titled "What is Upper Middle Class?", hosts Michael Batnick and Ben Carlson delve into a multifaceted discussion intertwining financial markets, economic trends, and personal finance insights. Skipping the advertisements and non-content segments, the hosts focus on dissecting current market behaviors, historical comparisons, and listener inquiries to shed light on the evolving landscape of the upper middle class and its financial implications.

Bull Market Comparisons: Then vs. Now

Michael Batnick opens the conversation by drawing parallels between the current bull market and the unprecedented runs of the 1980s and 1990s. He emphasizes the rarity and magnitude of these periods, noting:

“Annualized return by decade in the 80s and 90s are otherworldly. That's as far as I'm concerned, the greatest bull market of all time in US Stocks.” ([08:12])

Ben Carlson concurs, highlighting the extraordinary growth rates in recent decades compared to historical standards:

“The 2000s, the 90s, 80s and 90s were 18% per year almost... over 17% per year in the 80s, 18% per year in the 90s.” ([04:58])

They discuss how such high returns were unimaginable post the Great Financial Crisis, attributing the tech and AI booms as significant drivers.

Concentration of Market Capitalization: The Rise of the Mag 7

A major focus of the episode is the increasing concentration of market capitalization among a handful of mega-cap companies, referred to as the "Mag 7". Ben Carlson presents a striking statistic:

“The Mag 7 is 18.8 trillion, equal to the bottom 432 companies.” ([10:43])

This trend underscores the growing dominance of major tech giants like Apple, Amazon, Google, Microsoft, and Facebook within the S&P 500. Michael Batnick reflects on a past prediction:

“If you asked me in 2018, would we still be having this conversation in 2025... Probably not.” ([10:23])

They explore the implications of such concentration on market dynamics and potential future volatility.

Listener Questions: Stock Market Returns and Small Caps

The hosts address a listener email questioning why future stock market returns are often projected lower than the historical average, despite current double-digit growth rates. Ben Carlson explains the economic equilibrium:

“There needs to be some sort of equilibrium between the economy and the stock market... the economy grows at 2 to 3% a year.” ([07:18])

Michael Batnick expands on this by comparing the current market's growth to the broader economy's pace, suggesting that sustained high returns are unsustainable without causing disparities.

They also discuss the struggling small-cap sector, referencing Jason Zweig's analysis on the Russell 2000's underperformance compared to the S&P 500. Ben Carlson posits that small caps may rebound as valuations improve and economic conditions stabilize.

The Meme Stock Phenomenon: Opendoor Case Study

A significant segment covers the rise of "meme stocks," with Michael Batnick and Ben Carlson examining Opendoor's volatile stock performance. Ben Carlson remarks on the unprecedented retail investor influence:

“Retail investors now have the ability to swarm like a beehive or whatever... it is pretty wild to see.” ([23:12])

Michael Batnick draws comparisons to pre-crisis hedge fund behaviors, highlighting a shift in market participation and sentiment. They debate the sustainability and impact of such speculative activities on price discovery and overall market health.

Federal Reserve and Market Volatility

The discussion transitions to the Federal Reserve's role amidst current market conditions. Michael Batnick shares his perspective on potential political interference:

“Powell is the last independent Fed chair that we will ever have from now on... I don't think the markets would really crash.” ([34:29])

Ben Carlson adds that while speculative activities like meme stocks may introduce short-term volatility, foundational economic factors remain pivotal in shaping long-term market stability.

Consumer Sentiment and Wealth Perception

Michael Batnick and Ben Carlson touch upon consumer sentiment surveys, questioning their reliability in the digital age. They reference a University of Michigan study indicating minimal disparity in sentiment between the wealthiest and poorest 25% of Americans, a trend seldom seen since 1979. Ben Carlson criticizes the utility of such surveys:

“To me, this is interesting, but it's garbage can. It's interesting in the sense that it confirms that surveys are nonsense.” ([33:09])

This segues into a broader conversation about the perception of wealth and financial well-being within different economic strata.

Bitcoin and Cryptocurrency Discussions

The hosts tackle listener questions on understanding Bitcoin beyond its role as an inflation hedge. Ben Carlson simplifies his stance:

“There are enough true believers, enough people that for this, for them it's a religion... more people that want to buy than want to sell.” ([43:35])

Michael Batnick shares personal anecdotes about embracing Bitcoin, emphasizing the importance of understanding supply and demand dynamics over philosophical debates.

Retirement Trends and Social Safety Nets

A brief analysis of retirement trends indicates a shift towards later retirement ages, influenced by longer life expectancies and evolving economic conditions. The hosts link this to increasing federal entitlement spending, questioning the sustainability of social safety nets. Ben Carlson underscores the necessity of personal savings amidst these trends.

Personal Anecdotes and Light-Hearted Segments

Interspersed with financial discussions are personal stories, including Michael Batnick's mishap with a phone drop during a family outing and their experiences with smart TVs and street sweepers. These segments add a relatable and humorous touch to the episode, balancing the technical financial discourse.

Conclusions

In wrapping up the episode, Michael and Ben revisit the themes of market concentration, speculative trading behaviors, and the evolving definitions of wealth within the upper middle class. They emphasize the importance of informed investing, diversification, and understanding broader economic indicators to navigate the complex financial landscape.

Notable Quotes

• Michael Batnick ([08:12]): “The 2000, the 90s, 80s and 90s were 18% per year almost. It was over 17% per year in the 80s, 18% per year in the 90s. Unbelievable run.”

• Ben Carlson ([10:43]): “The Mag 7 is 18.8 trillion, equal to the bottom 432 companies.”

• Ben Carlson ([33:09]): “To me, this is interesting, but it's garbage can. It's interesting in the sense that it confirms that surveys are nonsense.”

• Ben Carlson ([43:35]): “There are enough true believers, enough people that for this, for them it's a religion... more people that want to buy than want to sell.”

• Michael Batnick ([28:10]): “Buffett quote of it's investing is simple but not easy. I still subscribe to that.”

Final Thoughts

Episode 422 of Animal Spirits offers a comprehensive exploration of current financial market trends, the shifting dynamics of the upper middle class, and the interplay between economic indicators and personal wealth. Through insightful analysis and engaging dialogue, Michael Batnick and Ben Carlson provide listeners with valuable perspectives to navigate the ever-evolving landscape of markets and investing.