Podcast Summary

Podcast: The Compound and Friends
Episode: Stocks After a Rate Cut With Nick Colas, the End of Quarterly Earnings Reports, Strategy Denied S&P Inclusion
Air Date: September 16, 2025
Hosts: Josh Brown (A), Michael Batnick (C)
Guest: Nick Colas (B), co-founder of DataTrek Research

Episode Overview

This episode dives deep into the implications of an imminent Federal Reserve rate cut, explores the mechanics of stock valuations in today’s tech-driven market, analyzes the changing dynamics of quarterly earnings reporting, examines sector performance, and discusses topical headlines like MicroStrategy’s S&P 500 exclusion and the coming tokenization of NASDAQ stocks. The episode features Josh Brown and Nick Colas in the first segment, then Josh and Michael Batnick in the “What Are Your Thoughts?” roundtable, delivering informed commentary, anecdotal insights, and memorable hot takes.

Key Discussion Points & Segments

1. Fed Rate Cuts: History, Odds, and Market Impacts

(04:35 – 13:24)

• Historical Context of Rate Cuts

  • Since 1990, 60% of Fed cuts were 25bps; 33% were 50bps, typically in or post-recession (B, 04:35).
  • Recent 50bps cut in a non-recession was an anomaly, attributed to an "extreme hiking cycle" (A, 06:10).

• Market Sentiment & Pricing

  • The 25bps cut is almost entirely priced in ("94% chance," A, 04:00).
  • A surprise 50bps cut would freak out markets: "Fifty basis points cuts say the economy's in recession and you don't want that king of signaling… I don't see it. It's going to be 25." (B, 05:17)

• Market Reactions to Rate Cut Signals

  • Recent rallies in cyclical stocks reflect anticipation of consistent, measured cuts, not a dramatic one (A & B, 07:25–08:12).

• Quote:

  “If they went 50% out of the blue with no pre-warning...tremendous shock...market would say, ‘crap, the Fed sees something we don’t see, we’re going into a recession.’”
  —Nick Colas (B, 09:19)

2. Earnings Revisions & Valuations: S&P 500 Outlook

(13:24 – 20:56)

• Earnings Over Macro

  • Earnings estimates for the S&P 500 have been rising weekly since June-July (B, 14:21).
  • "If you had slid the marker all the way toward earnings and away from the economy, you probably outperformed over the last 15 years..." (A, 13:24)

• Valuation Sensitivity Grid

  • S&P 500 fair values analyzed across earnings/multiple scenarios (B, 14:28).
  • Only 7 out of 49 scenarios offer genuine upside; high multiples require either higher earnings or higher multiples for further gains (B, 15:41).

• Tech Leadership & Demographics

  • Market confidence rooted in company fundamentals, labor force dynamics, and demographics favoring a younger, tighter employment market (A & B, 18:33–19:24).

3. Big Tech: Then and Now – Are Today’s Multiples Justified?

(20:56 – 36:31)

• Nvidia vs. Intel

  • Nvidia’s margins, return on equity (106%), and capital efficiency vastly exceed Intel in 1999 (B, 21:39–23:32).
  • "Nvidia is seven and a half times more profitable than Intel." (A, 24:24)
  • Current multiples do not seem outrageous relative to superior business fundamentals. “With those returns on capital...not with those returns on capital...not with those returns on capital...” (B, 25:57)

• Meta vs. IBM

  • Meta’s net margin is 39% vs. IBM’s 9% in the 1990s; both similar in revenue, Meta 5x more profitable (B, 26:33).
  • Difference in growth investment mindset; Meta is founder-driven and aggressive, while IBM stagnated (A & B, 28:01–30:04).

• Microsoft Past vs. Present

  • Today’s Microsoft is 10x larger in revenue than its 1990s inflation-adjusted counterpart, with sustained margins reflecting tech’s compounding power (B, 31:03).

• Investment Conclusion

  “Tech business models have gotten a lot better over the last 30 years...deserve a higher multiple.” (A, 33:53)

  • Colas emphasizes understanding “the reasons why those numbers are” vs. fixating on PE ratios per se (B, 34:21)

4. Sector Performance & Opportunity: Financials, Utilities, Energy

(36:31 – 43:32)

• Sector Outperformance Drivers

  • Best-performing sectors (Communications, Tech, Industrials, Utilities) combine higher PE multiple expansion and earnings upgrades (B, 36:46).

• Financials: A Neglected Opportunity

  • Forward earnings up 10%, but no PE rerating; "financials to me is like the easiest trade into year end" (B, 39:22 & 40:05).

• Utilities & Consumer Discretionary

  • Utilities rerated due to AI/data capex demand and falling rates (A, 41:36; B, 42:00).
  • Consumer discretionary flat due to modest earnings growth; explained by sector composition (A & B, 42:26–42:59).

• Healthcare: Complexity Headwinds

  • Underperformance explained by sector volatility, specific stock struggles (A & B, 43:23).

5. Debate: Ending Quarterly Earnings Reports

(48:56 – 62:23)

• Trump’s Proposal: Move from quarterly to semi-annual reporting to “save money and allow managers to focus on running companies” (A, 48:56).

• The Case For & Against

  • Batnick: More frequent reports = more transparency, less opportunity for companies to hide poor performance (C, 50:42).
  • Brown: Investors may punish (lower multiples) those who opt out of frequent reports; large companies with strong reputations (e.g., Berkshire Hathaway) might get away with it (A, 51:02).
  • Historical context: requirements were a response to 1960s-70s financial scandals; quarterly reporting improved transparency (A, 53:23).
  • Change could "amp up daily volatility"; “Not great for anyone, really” (A & C, 59:15).

• Takeaway: Both hosts agree there’s room for debate, but widespread reregulation is unlikely to fly (A, 62:23).

6. Algorithmic Rage, Social Media Profits & Societal Impact

(63:14 – 68:42)

• Adam Butler’s Post:

  • The system now prioritizes corporate profits even at society's expense; social media companies maximize engagement via divisive/rage content (A, 64:29; C, 66:10).
  • "We built the most powerful resource allocation machine in history, then let it allocate us...We became the resource, the product, the feedstock." (A, 64:29, quoting Butler)

• Real World Impacts

  • Violence and outrage outperform all else in engagement; algorithms “amplify engagement...by making us all want to kill each other” (A, 65:40).
  • Disconnect between economic data and collective sentiment fueled by algorithm-driven pessimism (C&A, 69:46).

7. Corporate Profits, Consumer Health, and The Disconnect

(70:32 – 78:28)

• Profit Margins vs. GDP

  • S&P 500 margins outstrip nominal GDP growth, but “it’s not as if the corporations are doing amazing and the average citizen is just getting... left behind. It’s not true.” (C, 71:01).
  • Cites company management commentary (“the consumer is healthy and resilient”) and hard credit card spending data (A & C, 72:15–73:46).

• Demographics and Retiree Impact

  • Retirees now make up a larger share of US consumption–spending increasingly driven by wealth effects, not just labor market (C, 76:23; A, 76:27).
  • Both acknowledge the K-shaped economy: top 10% drive disproportionate consumption, but prop up the data for everyone (C, 75:07).

8. MicroStrategy Denied S&P 500 Inclusion – Crypto Company Headwinds

(78:32 – 88:12)

• S&P Committee Decision

  • Despite market cap and meeting most criteria, MicroStrategy (now "Strategy") excluded, largely because it's “effectively a bitcoin fund” (A, 80:13).
  • Sets precedent impacting other “corporate crypto treasuries”.

• Market Structure Discussion

  • Divergence between MicroStrategy’s share price and bitcoin; Jim Chanos-style pairs trades (long BTC/short MSTR) highlighted (A & C, 82:22–83:51).

• Crypto Miners Pivoting

  • Mining companies like Riot pivoting to AI as demand shifts; outperforming on stock returns (C, 85:52–86:32).

9. Aftermath of Fed Rate Cuts: “No Analog” For Current Cycle

(88:28 – 97:57)

• Market Reactions: Mixed Bag

  • S&P 500 up 9.6% on average a year after the first cut, with much variability; “this current environment is so weird…” (A, 91:22; C, 91:54)
  • No clear-cut pattern, current backdrop of strength, and continued multiple expansion (C, 90:40).
  • “We’re writing the screenplay right this minute.” (A, 92:43)

• Contrarian Macro Take

  • Lower rates could actually reduce household interest income (David Kelly’s analysis: $140B less income from 1% lower rates) (C, 93:39–94:18).
  • Near-zero rates may not stimulate as intended for the asset-rich (A & C, 95:07–95:31).

10. Sentiment, Surveys, and the “Wall of Worry”

(95:51 – 97:57)

• Despite major market gains, investor sentiment (AAII, etc.) remains flat, signaling persistent skepticism—a “wall of worry” (C, 96:51).
• Actual retail investment activity (e.g., Schwab’s data) still muted; “there is still a lot of doubt about the sustainability of this bull market” (C, 97:26).

11. The Coming Tokenization of NASDAQ Stocks

(98:12 – 105:11)

• NASDAQ has submitted filing to SEC to “facilitate the trading of tokenized securities on the NASDAQ stock market” (A, 99:37).
• Different from previous attempts (e.g., Robinhood’s derivatives), NASDAQ’s will represent actual equity on blockchain rails—enabling "24/7 trading, instant settlement, programmable ownership, access...for anyone, anywhere" (A & C, 100:05–101:38).
• General consensus: While details/hurdles remain, it’s a big structural development with potential for major market efficiency gains.

12. Personal Investing Philosophies: Betting on People

(105:11 – 109:28)

• Batnick shares a “Make the Case” anecdote, advocating for betting on special founders/CEOs as the true investment edge, over quants or technicals (C, 107:01).
• Quotes Steve Jobs: "It doesn't make sense to hire smart people and tell them what to do. We hire smart people so they can tell us what to do.” (C, 108:59)

13. Mystery Chart: Energy Sector Breakout

(110:32 – 113:32)

• The hosts reveal the “mystery chart” as XLE (Energy Sector ETF), plus ExxonMobil and Chevron—discussing a potential major technical breakout in energy stocks.

Notable Quotes & Moments

• On Rate Cuts:

  “You don't want 50 basis point cuts. Fifty basis points cuts say the economy's in recession and you don't want that kind of signaling…”
  (Nick Colas, 05:17)

• On Tech Company Margins:

  “Nvidia's net margins—2.3 times what Intel's was. 57% versus 25%...Nvidia is a much better business.”
  (Nick Colas, 22:21)

• On Ending Quarterly Reporting:

  “If you don't hear from companies regularly, they will lie to you aggressively. So…this is not good.”
  (Michael Batnick, 50:42)

• On Social Media & Rage:

  “The way they [social media] do it is by making us all want to kill each other. Nothing keeps people engaged like rage.”
  (Josh Brown, 65:40)

• On The Bull Market’s Wall of Worry:

  “The S&P just rallied 30%...and no bullish change in sentiment. So the wall of...nah, I don’t think so.”
  (Michael Batnick, 96:49)

Key Timestamps

• 00:00 – 04:34: Show intro, advert, guest introduction, & Fed rate cut preview
• 04:35 – 13:24: Rate cut history & odds, market implications
• 13:24 – 20:56: Earnings over macro, valuation sensitivities
• 20:56 – 36:31: Big Tech vs 1990s analogs, multiples justified
• 36:31 – 43:32: Sector performance, financials opportunity
• 44:45 – 47:04: Banter, sponsor message
• 48:56 – 62:23: Ending quarterly reporting—debate, history, merits
• 63:14 – 68:42: Societal harms of social media, Butler’s critique
• 70:32 – 78:28: Data vs. sentiment, consumer health, demographics
• 78:32 – 88:12: MicroStrategy S&P 500 snub, crypto companies, market structure
• 88:28 – 97:57: Rate cut aftermath, market precedent, sentiment, “wall of worry”
• 98:12 – 105:11: NASDAQ to tokenize stocks, implications & differences
• 105:11 – 109:28: Make the Case: Betting on founders/management
• 110:32 – 113:32: Mystery Chart—energy sector technical setup

Takeaways

• Fed cuts: Most expect a 25bps cut; a higher one would signal trouble and likely shock risk markets.
• Market drivers: S&P 500’s continued rally more reliant on earnings upgrades and belief in higher multiples—a tightrope held aloft by outstanding Big Tech fundamentals.
• Tech's supremacy: Today's tech companies crush their 1990s forebears on every metric; higher valuations are justified.
• Sector opportunity: Financials may be undervalued, with earnings overlooked by current valuations.
• Transparency vs. burden: Ending quarterly reporting could backfire, as transparency is a cornerstone of investor trust.
• Societal strains: Algorithmic drives for engagement engender pessimism and rage, fueling a disconnect with economic data.
• Tokenization is coming: NASDAQ’s initiative may revolutionize market infrastructure, but details are still to come.

A must-listen for investors and market watchers seeking clarity on the interplay of Fed policy, corporate profit cycles, tech-led market dynamics, and the regulatory-technological frontier.