The Compound and Friends

Episode: Software vs Semis, Trump Accounts for Babies, Sell-Side Indicator
Date: January 6, 2026
Hosts: Josh Brown ("A"), Michael Batnick ("B")

Episode Overview

In this high-energy kickoff to 2026, Josh and Michael dive into the shifting dynamics between software and semiconductor stocks, analyze Wall Street’s ever-controversial Sell-Side Indicator, break down major announcements from Nvidia and Amazon at CES, discuss the new “Trump accounts” set to seed investment accounts for every baby born in the U.S., and reflect on the broader implications of democratizing market participation. The episode is filled with sharp insights, candid market skepticism, and a signature dose of humor.

Key Discussion Points and Insights

1. Software vs. Semiconductor Stocks (01:59–13:00)

• Michael’s “Bad Take” and a Historic Spread

  • Michael shares how his recent optimistic take on software vs. semis was instantly upended: “AI is not going to replace software companies like Adobe and Salesforce…then the market said, oh yeah, watch.” (04:38)
    • On the same day, semiconductor stocks soared +4.2%, software stocks fell -3%, marking an all-time daily performance spread between the two (+7%—never seen in 25 years).
    • Josh: “That’s like God throwing a Thunderbolt at you.” (05:49)
  • They discuss possible mean reversion, considering whether the outperformance of semis is sustainable, or if software will stage a comeback, or semis will simply drop.
    • Michael: “I think this might be a blow-off top...but I’m not a trend fighter.” (06:07)
    • Josh: “You could get that mean reversion because software’s great, or semis crash.” (07:51)

• ETF Construction Woes

  • Both note shortcomings in software ETFs (e.g., IGV) vs. the cleaner composition of semiconductor indices; many “software” companies are actually diversified tech conglomerates.
    • Michael: “Build a perfect software index. … It’ll look the same.” (09:59)
    • Josh: “The top 10 semi index, those companies are making chips.” (09:28)

• Market Cap Divergence

  • Michael highlights how Adobe and Salesforce’s market caps tracked in lockstep until a recent sharp divergence.

• Price vs. Narrative

  • A debate on whether markets or narratives drive changes — with a strong nod toward price action being the better signal.
    • Josh: “That’s why I’m a price person first, and then I try to figure out what’s the narrative...A lot of people are vice versa.” (11:37)
    • Michael: “Usually the market is right and we’re wrong.” (12:02)

2. Savita Subramanian’s Sell-Side Indicator & Wall Street Sentiment (13:00–22:38)

• Contrarian Indicator Background

  • Josh reviews how Savita’s indicator measures strategist equity allocation and its long-term use as a contrarian signal (bullish when Wall Street is bearish, and vice versa).
  • The indicator is now near—but not at—a sell signal (current: 55.9%, “neutral but closer to a sell”). (14:23)
    • Josh: “It’s taken a long time and up year after up year, and now it’s completely gone the other way.” (13:38)

• Debating the Signal’s Value

  • Michael: "This is literally noise." (15:33)
    • Contrarian indicators work better in bear markets. “It’s a lot easier to say everybody’s gotten way too bearish than way too bullish.” (15:43)
    • Current strategist consensus is for 10% S&P return in 2026, 12% in 2025—so Josh notes, “there’s no holdouts... It’s not a bad thing, but the dry powder is dwindling.” (21:22)

• Asset Allocation Trends

  • Risk appetite rising: Bond allocations lowest since 2022; cash is up but still low; equity allocations near highs.
    • Michael: "That looks like excessive risk taking." (18:58)

3. Market Structure, Debt, and AI Capital Intensity (22:38–30:09)

• Corporate Debt & CapEx

  • S&P net debt to EBITDA is not alarming—less dramatic than expected despite hype over ‘debt entering the room’ (Sam Ro’s charts).
  • CapEx to Sales rising but debt-financed CapEx remains historically low, even among high-spending tech:
    • “Shockingly low in a good way.” (24:10)

• Worker Productivity Boom

  • Real revenue per worker is at highs only recently, despite years of cloud and automation hype.
    • Michael: “Only now...has it really been busting up and to the right. Pretty remarkable.” (25:29)

• Valuation Rationality

  • The market is paying more for better businesses—higher price-to-book for higher ROE stocks—i.e., “the internal logic of valuation in the market.” (26:43, 27:33)

• Bubble Talk Rejected

  • Cites the small and shrinking share of “young unprofitable tech” stocks relative to total market cap. “That’s not what’s driving the market...That’s very healthy.” (29:27, 30:09)

4. Trump Accounts for Babies: A Policy Shift (30:09–43:57)

• Program Details

  • Every baby born 2025–2028 gets a $1,000 federally seeded account, invested in the equity market, with up to $5,000 in annual contributions allowed, tax-advantaged until adulthood.
  • Backed by bipartisan support, philanthropists (e.g. Michael Dell, Ray Dalio), and major companies like BlackRock and Schwab offering matching contributions.

• Market/Social Implications

  • Josh: “It addresses arguably the biggest societal problem we have right now in this country.” (33:21)
  • “We have too many people who are not feeling the benefit of the growth of the stock market and the equity value of American business... This is a better way to fight communism than on social media.” (34:45)
  • Highlights mid-20th-century anti-communism strategies and their links to property ownership; draws a line to modern policy for “stock market Americans.”
    • “The way to fight communism is this big idea that Brad Gerstner had and that now the Trump administration has embraced: let’s make more stock market Americans the best way we know how.” (40:43)

• Michael’s Take:

  • “If you don’t like this, you really need to have your head examined. This is all good.” (43:01)

5. Sector Leadership Rotation: The Mag 7 vs. S&P 493 and Risk Appetite (43:57–49:38)

• Leadership Transition

  • Michael spotlights a chart showing the Mag 7’s ratio vs. the rest of the S&P (“the 493”) breaking down—risk-on trades remain hot, but leadership is rotating.
    • “The Mag 7 might be passing the baton to the 493 like it might actually be happening…” (46:09)

• AI Benefits Broadening

  • Goldman’s AI basket: companies outside tech and AI, but who have specific implementable AI plans, are already seeing earnings growth divergence. (49:01)
  • Josh: “This is the whole kit and caboodle. It’s a big story of 2026.” (49:43)

6. CES Highlights: Nvidia and Amazon (50:12–61:07)

• Amazon at CES

  • Showcases new Ember Art Line TV, Alexa browser experience (Alexa.com), expanded AI in advertising products, ring security hardware, Fire TV/gaming upgrades, and Zoox autonomous vehicles.
  • Josh: “The Alexa AI-enabled browser...got people thinking, ooh, maybe they are on the consumer-facing AI side and it’s not just AWS.” (54:43)

• Nvidia’s Physical AI & Autonomous Vehicles

  • Jensen Huang introduced the Rubin GPU architecture: new integrated platforms for datacenters and AI.
  • “Physical AI” and robotics: Nvidia previewed major advances, but the real revenue isn’t here yet.
    • “The baton is going to be passed from data center build-out to the autonomous age... this is going to be the transition year.” (57:00)
  • In one year, Nvidia rolled out autonomous driving tech that took Tesla eight years, making its “Drive” platform the new centerpiece for automakers’ self-driving ambitions.
    • “Every major auto manufacturer...is going to get access to Nvidia’s software plus automotive chipset. That’s what hit Tesla today and what boosted Uber.” (59:18)

• Market Response

  • While Nvidia and Amazon stocks ticked higher, Josh notes that much of the “robotics” upside still isn’t in the price.

7. Notable Quick Takes and Segments (61:07–68:47)

• Personal Moments
  • A reflective interlude on old Instagram photos; Josh reminisces about childhood and long-term investing.
• Bank Stock Pitches
  • Josh pitches Fifth Third (FITB) and PNC as super-regionals benefiting from mergers and market re-ratings. (63:18–64:42)
• Mystery Chart: Micron (65:01–66:09)
  • Michael reveals Micron’s (MU) meteoric rise — from $120B to $386B market cap in under a year, illustrating wild price moves and “blow-off top” potential in semis.

Notable Quotes & Memorable Moments

• Michael Batnick:

  • “My take was this: this is the year where we realize AI is not going to replace software companies... then the market said, oh yeah, watch.” (04:38)
  • “This is literally noise because...this is not even close to euphoria.” (15:33)
  • On Trump accounts: “If you don’t like this, you really need to have your head examined. This is all good.” (43:01)

• Josh Brown:

  • “That’s like God throwing a Thunderbolt at you.” (05:49)
  • “The way to fight communism is not being a dick on Twitter to people who are struggling. The way to fight communism is this big idea… let’s make more stock market Americans the best way we know how.” (40:43)
  • On the decline of the “circus” stocks: “The presence of a circus...is not indicative of the idea that the entire market is a circus.” (30:09)

• Other Notables:

  • “You don’t grow up to be a loser automatically just because your parents weren’t rich. We have people...growing up with no assistance...and it’s creating all sorts of crazy political shit. I love anything that seeks to counter that.” — Josh (43:31)

Timestamps for Key Segments

• 01:59: Start of substantive discussion — 2026 market kickoff energy.
• 04:38 – 13:00: Software vs. Semis: blow-off top, ETF problems, price vs. narrative.
• 13:00 – 22:38: Sell-Side Indicator, Wall Street bullishness, strategist allocations.
• 22:38 – 30:09: Market structure, debt levels, CapEx, productivity, valuation logic.
• 30:09 – 43:57: Trump accounts for babies; social, cultural, and policy impact.
• 43:57 – 49:38: Sector rotation, the Mag 7, S&P 493, risk-on evidence.
• 50:12 – 61:07: CES: Nvidia, Amazon, autonomous driving, new AI narratives.
• 63:18 – 64:42: Bank stock pitches: FITB, PNC.
• 65:01 – 66:09: Mystery chart: Micron's historic run as AI-fueled semi.
• 67:23 – 68:47: Reminiscences and “stocks of our youth” returning in the AI era.

Tone, Language, and Style

• Direct, energetic, conversational, blending sharp market analysis with humor and irreverence.
• Frequent use of light-hearted banter and self-deprecating comments (e.g., “That’s noise,” “Find a perfect set. ... Whatever. … I’m such an idiot. I didn’t even look to the left.”)
• Willingness to openly revise views, debate, and highlight both conviction and uncertainty.

Closing Thoughts

This episode captures a pivotal moment in markets, with shifting sector leadership, burgeoning new programs meant to democratize investing for a generation, and an undertone of optimism (tempered with realism) about both the American economy and the ongoing AI revolution. The hosts blend sharp takes with accessible explanations, making this a valuable listen for anyone following finance, policy, or technology.