The Compound and Friends – "Momentum Stock Slaughterhouse"

Date: February 6, 2026
Hosts: Josh Brown, Michael Batnick
Guest: John Mowry (CIO, NFJ Investment Group)
Main Theme: Navigating major rotations and volatility in equity markets, with a focus on recent collapses in momentum stocks (particularly software), factor investing, and where opportunities are arising.

Episode Overview

This episode dives deep into the chaos and opportunity in today’s equity markets. The hosts, alongside first-time guest John Mowry, discuss the mass liquidation of popular momentum stocks, the broadening of market performance beyond tech, and lessons from market factor rotation. The conversation covers the causes of factor decay, the challenges of adapting investment strategies, and emerging bright spots in value sectors like energy, banks, and materials. Throughout, the trio delivers real-time takes on fund flows, ETF impacts, crypto's correlation with tech, and the ongoing bull market.

Key Discussion Points & Insights

1. Personal Background & Investment Perspective

• Dallas chat: The episode opens with banter about Dallas, John’s background, homeschooling, and breaking into finance unconventionally.
  • John shares how being an outsider and dyslexic, homeschooled until 11th grade, shaped his willingness to challenge norms in investment management. (03:03)
  • "For the longest time, I was totally embarrassed about this... Now, I just don't care." – John Mowry (03:03)

2. The Value Trap & Factor Decay

• John discusses NFJ’s history as a value shop, thriving pre-2008, but struggling as factor investing became crowded and factor returns decayed post-crisis:
  • “There was factor decay … because of the proliferation of ETFs and passive money.” – John Mowry (16:13)
  • Value factors like low P/E or book-to-market stopped working after 2008, largely due to systematic factor investing and ETFs commoditizing what was previously “alpha.”
  • “All those back-tests look really good from 1980 up to about 2008 … from ‘08 forward, those factors began to go away.” – John Mowry (17:10)
• John rose to CIO by pushing for process and cultural changes, even as the youngest analyst – facing internal pushback from traditional value managers (19:14).

3. Seniority as Double-Edged Sword

• The panel debates whether team tenure is actually an “edge,” or a hindrance as market conditions change.
  • “Our success became our Achilles heel.” – John Mowry (20:30)
  • "Just the fact that you've been around might actually work against you … all the biases you build up over time." – Michael Batnick (20:50)
• They cite Peter Bernstein’s work on paradigm shifts where “experts at an earlier version of the world” fail to adapt (21:11).

4. Death of the Old Value/Growth Divide

• Modern classification is blurry; Amazon now sits in value indices, further eroding the usefulness of growth vs. value labels (29:07).
  • “I honestly hate classifying stocks as growth and value. It’s super annoying … Amazon is in the value index.” – John Mowry (29:07)
• The discussion highlights adaptive managers like Bill Nygren who found value in high-growth names (24:36).

5. Peer Group Analysis for Finding True Value

• John explains their approach: custom peer group analysis beyond GICS/classifications, needing a nuanced view for fair comps.
  • Example: “Sherwin Williams is a chemical stock, but it actually looks more like Home Depot.” – John Mowry (26:23)
• The goal is to improve probability of mean reversion by analyzing relative valuations within appropriate peer sets (27:14).

6. Software & Momentum Stocks: The Slaughterhouse

• The crew analyzes the recent crash in software/momentum stocks as “margin-related, indiscriminate” liquidation.
  • “Application software … it’s in a 30% drawdown. But that’s not the worst part. It’s fallen 18% in seven days. The only other two times were the financial crisis and Covid.” – Josh Brown (34:09)
  • Yet, the S&P remains near all-time highs; unprecedented divergence from historical broad selloffs (36:07).
• Rotational Dynamics: Money flows rapidly into materials, energy, staples; equal-weight indices and smaller sectors catch a bid (43:14).

7. Is the Rotation Bullish or Bearish?

• John is “concerned” about big cohorts under pressure; Michael sees it as “unbelievably bullish,” showing market resilience as leadership rotates rather than collapses (37:54).
  • "Because this was the number one risk ... And what we're learning right now is the band plays on, because there are other opportunities … you can’t disrupt mac and cheese." – Michael Batnick (38:09)
• The group reflects on contagion risk, referencing 2000, noting there were many stocks that held up fine even as tech melted down (41:14).

8. Momentum Factor & Other Rotations

• Momentum outperformed all factors post-2022, but reversal sparks opportunity in fundamental-driven names, especially refiners/banks (43:09, 44:00).
  • "Momentum ... will never get arbitraged away because it's too emotional." – John Mowry (42:05)

9. Valuations: Staples vs. Tech

• Fund flows into staples have supercharged their valuations—forward P/E now equals that of tech for the first time (59:57, 60:11).
  • “Staples forward PE and tech forward PE… are touching tips.” – Josh Brown (60:06)
  • Warnings that staples fundamentals are weak, and buyers are “paying for safety, not earnings” (60:57).

10. Value’s Next Champions: Financials and Energy

• If a five-year value outperformance emerges, dominance could accrue in financials and energy – not just a “SAG 7” of defensive names (54:46).
  • "The way that value is expressing itself… may be a few stocks, but maybe it'll be sectors... financials, energy, materials." – John Mowry (54:44)
• New bull markets may not be obvious until well into the rotation; small caps and cyclical value are quietly outperforming off recent lows (65:17).

11. Crypto’s Meltdown and Market Correlation

• Crypto’s crash is now highly correlated with tech risk, losing any uncorrelated asset status it once claimed (74:52).
  • “It used to not be. Everyone made this argument that it was an uncorrelated asset. And that drove me crazy." – John Mowry (74:52)
  • Discussion covers ETF flows (causal, not just correlated), and how bitcoin/ETH are now “part of the casino" (75:01).
• Gold stocks discussed as another “store of value” play—explaining leverage to gold price movements (77:32).

12. Bull Market Timing & Market Structure

• The trio debates when the secular US bull market started: 2009, 2013, or later (67:00). Context: “secular" cycles require more than just recovery from bear market lows.

  • “People act as if, if the world doesn’t end ... then it’s not a bear market. That’s just nonsense.” – Josh Brown (71:08)

• They note the resilience and breadth of the rally beneath the surface—especially in rate-sensitive stocks and small caps (65:32), and in groups like regional banks and refiners (49:04, 64:19).

Notable Quotes & Memorable Moments

• Homeschooling, stigma, and the nontraditional path:
  • “Their experience... There’s a stigma with homeschooling... For the longest time, I was totally embarrassed... Now, I just don't care.” – John Mowry (03:09)
• Seniority and changing markets:
  • “Our success became our Achilles heel.” – John Mowry (20:30)
  • “Team experience... it’s held out as an edge, and I question it.” – John Mowry (20:50)
• Factor decay:
  • “With ETFs, it took diversified alpha and made it beta. It no longer was alpha.” – John Mowry (17:31)
• The uniqueness of stock rotations:
  • “There’s never been an instance where an S&P industry so large sold off so hard, and yet the market remained at highs.” – Josh Brown (36:07)
• AI and sector impact:
  • "Private equity companies are creating a bubble in capex for AI, which is then disrupting all these software companies that they're invested in." – (Joe Weisenthal via Michael) (30:14)
• Unprecedented staples/tech convergence:
  • “Staples forward PE and tech forward PE… are touching tips. They have converged.” – Josh Brown (60:06)
• Value rotation thesis:
  • “If we have a value run that lasts for five years ... we’ll have a Mag 7 of value stocks. Because herding is never going away.” – Michael Batnick (51:19)

Timestamps for Key Segments

| Timestamp | Segment/Topic | |-----------|---------------------------------------------------------------------| | 00:00–04:40 | Banter, John’s background, homeschooling, and unconventional career start | | 15:16–19:39 | Value investing pre/post-2008, factor decay, and rise of ETFs | | 20:26–21:11 | Seniority vs. adaptability, industry edge | | 29:07–31:05 | Value vs. growth classifications, and changing index composition | | 34:09–37:54 | Magnitude of software/momentum crash; market divergence | | 43:09–44:00 | Momentum factor, rotation to fundamentals, refiners & banks | | 59:57–61:22 | Staples vs. Tech valuations; convergence | | 65:32–70:25 | Small cap outperformance, market structure, when did the bull begin| | 73:15–76:01 | Crypto: Market correlation, ETF influences, bitcoin/ETH crash | | 77:32–78:43 | Gold stocks as leveraged store of value | | 80:17–82:53 | Closing thoughts: John’s family trip philosophy & personal side |

Closing: Life, Family, and Perspective

• John shares advice on the importance of travel and creating family memories, not just focusing on career (80:20).
  • “Trips are the key ingredient for marriage, and they're the key ingredient for family ... I'm a big believer in it.” – John Mowry (80:28)
  • Michael reflects on the impact trips have had with his now-grown children (81:47).

Summary Table: Key Takeaways

| Theme | Bearish/Concern | Bullish/Opportunity | |----------------------------|------------------------|----------------------------------| | Software/Momentum Crash | Indiscriminate, big loss | S&P holds, rotation into value | | Value vs. Growth | Factor decay, crowding | Peer group analysis, material/energy uplift | | ETFs & Passive | Factor arbitrage gone | Broader opportunity, less herding | | Staples Valuations | Frothy, not fund. driven | - | | Financials/Energy | - | Low valuations, strong growth | | Crypto | Correlated, ETF-driven selloff | - |

Where to Find Guest & Hosts

• John Mowry: NFJ Investment Group (via Virtus), LinkedIn.
• The Compound and Friends: Tuesdays & Fridays, all podcast platforms.

This summary captures major themes, technical insights, and memorable dialogue—offering a comprehensive guide for those who missed the episode or want to revisit key investment ideas from this timely roundtable discussion.