Podcast Summary

Overview

Episode Title: Fidelity’s Quant Boss Reveals Her Top 3 “Desert Island” Stock Market Indicators
Podcast: The Compound and Friends
Host(s): Downtown Josh Brown, Michael Batnick
Guest: Denise Chisholm (Director of Quantitative Market Strategy, Fidelity)
Date: October 5, 2025

Theme:
This episode features an in-depth discussion with Denise Chisholm, Fidelity’s Director of Quantitative Market Strategy. The hosts dig into Denise’s approach to market analysis, the importance and interpretation of historical data, investor behavior, the mechanics behind market shocks, and, most memorably, her "desert island" indicators—her three go-to data sets for assessing markets. The conversation is rich with actionable insights on what really matters in stock market forecasting, the dangers of received wisdom and market narratives, and how to maintain perspective during market extremes.

Key Discussion Points & Insights

1. The Value of Historical Perspective

• Denise shares that working at a storied firm like Fidelity provides access not just to decades of market data, but also to direct experience from investors who lived through past crises, such as the bear market of the 1970s. This dual lens—data and lived experience—enhances her analytical process.

  • [02:43] “We have people walking in the halls that know exactly what that bear market felt like.” —Denise Chisholm

• The hosts and Denise agree there's a significant difference between statistical hindsight and living through actual market cycles—the data can guide, but the narrative and nuance of the moment still matter.

2. Investor Emotions and Market Extremes

• Denise asserts that bear markets are tougher emotionally for investors than bull markets; poor market timing and panic-selling often erode investor returns.

  • [04:00] “Statistically … retail investors’ biggest problem is that they don't tend to get the returns on average the equity markets deliver because they're too busy selling at bottoms.”—Denise Chisholm

• Stock market “bottoms on bad news,” so those who sell on fear often miss rebounds. “The getting back in is problematic as well.” [04:22]

3. Misreading Macroeconomic Data & Market Narratives

• Denise emphasizes the importance of distinguishing signal from noise: Many widely-cited macro “facts” and narratives (e.g., uncertainty, tariffs) often aren’t supported by the data—or even have the opposite effect.

  • [05:02] “What's the old quote where it's not what you don't know that gets you in trouble, it's what you know for certain that just ain't so. That's the problem. And the more I look at macroeconomic data, the more I see those patterns.”—Denise Chisholm
  • High uncertainty, paradoxically, often coincides with rising markets.

• The hosts bring up the narrative around Trump-era tariffs (expected market outflows and economic pain), and Denise walks through the math, showing that the resulting economic “shock” wasn’t enough to tip the U.S. into recession, especially when offset by falling oil prices. [09:31]

4. CEO Sentiment: More Than a Contrarian Indicator

• Denise unpacks a spike in CEO sentiment following corporate tax cuts, noting that rebounds from recessionary levels are usually bullish—whereas euphoria and “top quartile” confidence can signal late-cycle risk.

  • [12:36] “You want CEO confidence to be bottom quartile and rising … that’s exactly the signal we’re seeing.”

• Multiple expansion typically follows as earnings visibility improves—Wall Street pays up for clarity.

  • [14:04] “The more visible earnings get, the more likely multiples are to go higher with no cap.”

5. Inflation, Tariffs, and the Fed

• Denise views tariffs as demand killers—ultimately more deflationary than inflationary.

  • [16:00] “They act like a tax. Yes, the prices of some goods go up, but unless somebody gives you more money … your marginal propensity to consume … goes down.”

• She highlights that current core CPI (ex-shelter) metrics show inflation is actually at a modest run rate, so Fed easing is not necessarily ill-timed even against strong GDP prints.

6. Investor Behavior Evolution

• The pandemic/correction era saw retail investors acting with uncharacteristic discipline—perhaps because market reactions were so rapid there was “no time to panic,” or because investors have internalized lessons about behavioral pitfalls.
  • [18:19] “It was very unique where retail, I think as a group, didn’t sell in what I would call almost bear market.”
  • Rapid declines more likely lead to swift recoveries, rewarding those who hold on ([19:24]).

7. Structural Changes in Markets

• Josh notes persistent inflows from retirement contributions ($1.5 trillion annually) likely dampen volatility and lift multiples over the long-term, even if realized volatility is unchanged over annual periods. [22:28]

8. Housing and the Next Leg of the Bull Market

• Housing remains depressed and “statistically cheap” relative to the rest of the market. Denise expects lower rates may fuse with low valuations for strong risk/reward setups in interest-rate-sensitive sectors (like homebuilders).
  • [24:34] On homebuilder stocks: “Your upside … if you get this transmission mechanism … it's about 35% … you're talking about a 10 to 1 ratio. … I think there are opportunities in housing.”
  • Housing is a large part of the economy—potentially a critical “leg of the stool” for continued expansion.

9. The Bear Case & What Endures

• It's hard to construct a strong bear narrative: euphoria is absent, credit spreads aren’t alarmingly tight, and median earnings growth remains moderate.

  • [28:43] “On a rolling one year basis since 1962, the S&P goes up 75% of the time. … My going in position any given year is I think I’m a buyer, I need to argue with myself … Why not?”

• True danger comes from unforeseen shocks, not length of expansion cycles per se. “Bull markets and economies don’t die of old age.” [32:08]

10. 2022 Bear Market: The Forgotten Correction

• The 2022 drawdown, though severe and lengthy (multi-year for some tech stocks), is often overlooked; Denise and the hosts discuss inflation above 4.5% as the key trigger, and how quickly such downturns are forgotten in financial media.
  • [33:55] “Inflation above 4.5% and rising is the worst setup for the market historically.”

11. Why the Obsession With Market Tops?

• Denise notes that “there’s always a group obsessed with calling the end,” often missing that markets can stay resilient despite “everything being wrong.”
  • It’s vital to weigh the risk of missing out on compounded market returns versus the fleeting satisfaction of calling a downturn.

Denise Chisholm’s “Desert Island” Stock Market Indicators

[44:12 – 47:44]

In the episode’s highlight, Denise is asked what three indicators/data sets she would want if stranded on a desert island and unable to access anything else:

1. Median Earnings Growth

   • Reason: The best indicator of whether corporate America is thriving at the middle, not just at the top. Median earnings are more predictive of job growth and economic momentum than cap-weighted averages dominated by a few giants.
   • [44:21] “To the extent that the median company in corporate America is profitable, then they tend to hire. Payrolls are a lagging indicator, profits are a leading indicator.”

2. Credit Spreads (High Yield vs Risk-Free)

   • Reason: Credit spreads are predictive at extremes—wide spreads signal bottoms (fear), tight spreads may warn of tops (complacency).
   • [45:10] “The tighter the credit spreads have been, the more likely the S&P is to go up over the next year.”

3. Valuation Spreads

   • Reason: The gap between cheap and expensive stocks reflects market fear—when spreads are wide, fear is high and opportunity may be greatest for contrarian investors.
   • [46:22] “You usually have this blowout in spreads … an expression of fear. When investors sell anything they think is risky … if you’re willing to be a contrarian, that’s when you want to step in.”

Denise ranks those in order of importance:

1. Median earnings growth
2. Credit spreads
3. Valuation spreads

Notable Quotes & Moments

• [05:02] “It’s not what you don’t know that gets you in trouble, it’s what you know for certain that just ain’t so.”—Denise Chisholm (originating with Mark Twain)
• [14:04] “The more visible earnings are, and earnings are getting more visible … the more likely multiples are to go higher with no cap.”—Denise Chisholm
• [19:24] “There’s a very strong statistical relationship between the speed of the bear market decline and the odds and magnitude the S&P is up on the other side.”—Denise Chisholm
• [28:43] “On a rolling one year basis since 1962, the S&P goes up 75% of the time. … My hurdle is pretty high. What’s that bearish precondition?”—Denise Chisholm
• [32:08] “Bull markets and economies don’t die of old age.”—Michael Batnick

Timestamps for Key Segments

• [02:43] — Importance of historical experience and data at Fidelity
• [04:00] — Emotional challenges in bear vs bull markets
• [05:02] — Misleading macroeconomic patterns & the uncertainty paradox
• [09:31] — Denise’s quantitative breakdown of the tariff shock
• [11:38] — Nuance of CEO sentiment and market cycles
• [14:04] — Discussion of multiple expansion and earnings visibility
• [16:00] — Tariffs as deflationary; inflation breakdown
• [19:24] — Speed of market declines and V-shaped recoveries
• [22:28] — Massive retirement flows & structural market changes
• [24:34] — Housing’s role in the economic cycle and the bull market
• [28:43] — What would make Denise bearish?
• [33:55] — 2022 bear market and inflation triggers
• [44:12] — Denise’s top three “desert island” leading indicators

Closing Thoughts

Denise’s approach bridges hard data and a deep appreciation for cycles, context, and human behavior. Her three “desert island” indicators—median earnings growth, credit spreads, and valuation spreads—offer a powerful toolkit for investors seeking to cut through narrative noise and ground decisions in historical patterns with predictive value.

Find Denise Chisholm’s work:

• Market Insights Podcast (Fidelity)
• LinkedIn

This summary conveys the core ideas, insights, and conversational spirit of the episode, designed for listeners and readers who want the actionable highlights and quotable insights, without needing to hear every minute.