The Compound and Friends – October 21, 2025

Episode: Netflix Reports, Why the Bull Market Has Legs Into Year-End With Nick and Jessica, Warner Bros for Sale, Unemployment Cracks Appear
Hosts: Downtown Josh Brown, Michael Batnick
Guests: Nick Colas & Jessica Rabe of DataTrek Research

Overview

This jam-packed episode dives into current S&P 500 earnings, market valuation, sector performances, and the factors supporting the ongoing bull market, with Wall Street experts Nick Colas and Jessica Rabe. Other hot topics: Netflix’s latest earnings, the looming Warner Bros sale, and emerging signals from unemployment data. As always, Josh and Michael provide an engaging blend of analysis, humor, and candid market talk, focusing on what matters most for investors and observers of business.

Key Discussion Points and Insights

1. S&P 500: Earnings and Valuations

• Earnings Beat Analysis

  • Q1 & Q2 2025 delivered historically strong earnings beats (+8.1% and +7.9%), driving much of the bull market's strength (B, 04:38).
  • Analysts are finally raising expectations, reducing sandbagging and nominal beat percentages (A, 06:46).
  • Profit margin expansion is not solely a tech phenomenon—five out of eleven sectors contributed, with financials leading (C, 07:05).

• Sector Standouts

  • Financials: Profit margin expansion (+1.7pts YoY) is unusual outside a post-recession, suggesting mid-cycle and ongoing bull market strength (A/C, 08:58–10:39).
  • Utilities: Underwent a rare rerating, outperforming even some tech companies in profit growth. They now combine yield and growth, attracting both dividend and growth investors (A/B, 11:14–13:15).

• Valuation Analysis: Shiller P/E and Earnings Power

  • The headline Shiller P/E looks extreme (~39), but adjusting for improved earnings power in recent years reveals more moderate valuation (B, 13:18–15:13).
  • Old rules around profit metrics and index composition are less useful when comparing today’s mega-cap tech-heavy market to previous eras (A, 16:09–16:58).

• Market Upside Assessment

  • For a 9% S&P upside, investors have to buy into a 24x multiple on 2026 earnings, which assumes continued earnings growth and unique, high-ROE tech leadership (A/B, 18:28–20:15).

  “You have to absorb the concept of a third of the S&P having a 50–60% ROE. ...These are truly unique times. This time may actually be a little bit different for a while.” – Nick Colas (B, 19:43)

2. Market Seasonality & Bullish Tilt Into Year-End

• Historical Peaks

  • S&P peaks in Q4 71% of years since 1980; December has the highest chance (53%) for annual highs.
  • Q4 peaks always correspond to strong double-digit annual returns (C, 20:25–22:59).

  “It is actually a pretty typical year... [the S&P] is currently up 13.3% so again that is in keeping with historical norms.” – Jessica Rabe (C, 22:44)

• Drivers of December “Melt-Up”

  • Performance chase, buybacks returning after earnings blackout, and year-end career risk for managers all play a role (A, 26:46–28:01).

3. Big Tech Financial Power & AI Capex

• Cash Machine: The Hyperscalers

  • Microsoft, Nvidia, Amazon, Alphabet, and Meta together will generate $570B operating cash flow in 2025; Apple would add another $100B (B, 28:14–30:34).
  • Capex is soaring (esp. Amazon), but big tech still returns massive cash to shareholders (buybacks/dividends).

  “It’s a big misconception that they’re plowing all their money into CapEx. There’s still money going back to shareholders—and more importantly, the companies have tremendous operating cash flow.” – Nick Colas (B, 29:51)

• ROI and Transparency Concerns

  • Even massive capex spends require only modest incremental returns due to base profitability—so the AI/GenAI Capex “bet” is relatively low risk, at least on paper (B, 33:21–35:38).
  • But the lack of transparency at critical AI linchpins like OpenAI could be a hidden risk (B, 36:20–37:46).

4. Hot Take: Netflix vs. YouTube & Implications for Media

• Netflix Earnings Call Reaction ([42:40]–[54:35])

  • Aftermarket selloff was likely algorithm-driven, based on a one-time Brazil tax charge, not underlying business weakness (A, 42:40).
  • Netflix’s maturing, adaptive model: relentless experimentation and willingness to pivot (e.g., adding ads, podcasts, live events) is a business case for agile incumbency (A/D, 44:54–46:47).
  • Netflix is now defending its turf as YouTube surges in living-room and podcast video consumption (A, 48:22–52:13).

  “2026 is going to be about Netflix vs. YouTube. ...If you thought Netflix’s competition was Hulu, you have no idea what’s coming.” – Josh Brown (A, 50:55)

  • Bold prediction: Netflix buys Spotify to fortify its content/ecosystem, position against Google/YouTube (A, 51:14).

5. Warner Bros for Sale: Media M&A

• Why Now?

  • Massive debt forces Warner to consider whole or partial sale; CNN is viewed as a toxic, cash-consuming asset (A/D, 57:53–61:28).
  • The likely buyer: Paramount, possibly as part of a broader industry consolidation, but bidding war unlikely (A, 62:03–65:29).

  “He [Zaslav] wants shareholders to believe that there is a bidding war out there. But Bell... says it’s all charades.” – Michael Batnick (D, 65:30)

6. Private Credit: Bubble or Boom?

• Bubble Checklist Analysis

  • Debate: Does the private credit boom check classic “bubble” boxes? Many elements are present: rapid growth, product innovation, talent inflows, but spreads and leverage (so far) are less worrisome (A/D, 70:18–83:44).
  • Key risk: Advisors may face client angst when illiquidity is tested in a downturn.

  “I think a lot of financial advisors are going to have to apologize for locking people’s money up in the next downturn when people actually want it out...” – Josh Brown (A, 79:09)

7. The Unemployment Picture: Cracks Emerging

• Labor Market Deterioration

  • Official stats are still strong, but signs of stress in office/knowledge sector job searches; long-term unemployment and job search frustration are surging (A/C, 89:27–93:40).
  • Automation and AI are actively replacing entry-level “grunt work”—creating a generation facing displacement (D, 93:41–95:51).
  • Macro concern: societal volatility if unemployment rises while corporate profits/stocks remain high.

  “If you see unemployment tick up in a meaningful way up to 5%... while profits and markets are at all-time highs, that is a very dangerous cocktail.” – Michael Batnick (D, 103:18)

Notable Quotes

• Nick Colas on Tech Leadership:

  "You have to absorb the concept of a third of the S&P having a 50 to 60% ROE... truly unique times. This time actually may be a little bit different for a while. Not forever, but for a while." (19:43)

• Jessica Rabe on Seasonality:

  "It is...a pretty typical year...The S&P is currently up 13.3%, so again that is in keeping with historical norms." (22:48)

• Josh Brown on Netflix vs. YouTube:

  "2026 is going to be about Netflix versus YouTube. ...If you thought Netflix's competition was Hulu, you have no idea what's coming." (50:55)

• Michael Batnick on Market Dynamics:

  "If you see unemployment tick up...while profits and markets are at all-time highs, that is a very dangerous cocktail." (103:18)

• Josh Brown on Private Credit Risks:

  "I think a lot of financial advisors are going to have to apologize for locking people’s money up in the next downturn when people actually want it out..." (79:09)

Timestamps for Important Segments

• [04:38] – S&P 500 Earnings Beat Analysis
• [07:05] – Sector Margin Performance (Jessica Rabe)
• [13:18] – Valuation: Shiller P/E Debate
• [20:25] – Market Seasonality: Peaks and Double-Digit Returns
• [28:14] – Big Tech Cash Flow & Capex Discussion
• [36:20] – Transparency/Concerns around OpenAI
• [42:40] – Netflix Earnings: Reaction & Streaming War Outlook
• [51:14] – Netflix + Spotify: “Heavyweight” Merger Prediction
• [57:53] – Warner Bros Sale: Context and Industry Impact
• [70:18] – Private Credit: Bubble Checklist Showdown
• [89:27] – Unemployment Data & Job Search Realities
• [103:18] – Macro Risk: Unemployment Up, Stock Market Up

Memorable Moments & Lighthearted Banter

• The “VIX creature” Halloween costume joke and how utilities have become the surprise “growth” story of the year ([03:23]–[13:15]).
• A playful comparison of Apple to Costco as the “consumer staple” of tech—with a dig at high multiples for stonesolid, recurring cashflow ([85:52]–[88:55]).
• Ongoing jokes about podcasting, YouTube video, and multitasking “listening while making lasagna… or beating their wife” ([47:44]).
• End-of-show “Make the Case/Mystery Chart” game—Zoom emerges as an overlooked, possibly inflecting stock ([104:50]–[108:58]).

Conclusion

An engaging, insight-packed episode that looks under the surface of market strength, sector dynamics, valuations, and the churning media landscape, while casting a realistic, sometimes wary eye on emerging cracks in the labor market and the evolving risks in private credit. For investors and observers, the message is clear: This bull market has a case, but savvy navigation—and healthy skepticism—are more important than ever.