The Compound's Post-Election Special with Callie, Ben, Michael, and Josh Released: November 6, 2024

Overview

In the post-election special episode of The Compound and Friends, host Downtown Josh Brown is joined by Ritholtz Wealth Chief Strategist Callie Cox, Ben Carlson, and Michael Batnik to dissect the economic and market reactions following the recent election. Steering clear of political debates, the panel delves into the intricate movements within various asset classes, market sentiments, and the broader economic implications of the election results. The discussion is rich with expert insights, data-driven analysis, and engaging commentary, making it a must-listen for investors seeking to understand the post-election landscape.

1. Host's On-Air Experience

[00:13 - 03:21]

Josh Brown kicks off the episode by sharing his personal experience being featured live on CNBC during the election coverage. He highlights interactions with notable figures like Gary Cohn, Dan Loeb, and Lyn Martin, offering listeners an insider's view of the high-stakes environment at the New York Stock Exchange during election night.

Josh Brown [00:13]: "I had the privilege of being live on CNBC... It was a lot of high-level people from Comcast, of course, the parent company of CNBC."

Ben Carlson [03:21]: "You're welcome. As a shareholder of ICE and therefore part owner of New York Stock Exchange, I'm glad that we had the opportunity to host you, Josh."

2. Election Results and Market Reactions

[03:30 - 08:20]

The discussion shifts to the election results, focusing on the extent of the Republican shift across states and its implications for the economy and markets. The panel appreciates the clear and decisive nature of the election outcome, noting the low volatility and absence of prolonged disputes over ballot counting.

Ben Carlson [03:30]: "The VIX at 40."

Callie Cox [05:32]: "This was a low, low VIX election... everything was very smooth."

Josh emphasizes the market's relief at the certainty of the election outcome, which contrasts with previous elections marked by uncertainty and prolonged disputes.

Josh Brown [07:14]: "The stock market actually the S&P rallied 12% from election night in 2020 through the inauguration in January 2021... one of the third calmest pre-election periods going back to 1984."

3. Small Caps Surge and Sector Analysis

[08:20 - 21:17]

A significant portion of the episode is dedicated to the surprising rally of small-cap stocks, particularly within the Russell 2000 index. The panel examines the factors driving this surge, including reduced tariff impacts on local companies and notable performance from regional banks.

Callie Cox [11:17]: "18% of Russell 2000 stocks are up 10% or more today."

Ben Carlson [12:25]: "Somebody tweeted Goldman had the best relative date to the S&P since 2009."

The panel discusses the sustainability of this rally, expressing caution about its continuation towards year-end. Josh Brown highlights the potential risks tied to inflation and the Federal Reserve's possible responses, which could undermine the gains in small caps.

Josh Brown [17:08]: "We're now facing down the biggest risk now going forward is the resumption of inflation... not good for small caps."

4. Prediction Markets and Sentiment Shifts

[12:52 - 30:50]

The conversation delves into the accuracy and influence of prediction markets like Poly Market and Kalshi. The panel debates whether these platforms can replace traditional pollsters, given their close alignment with election outcomes.

Ben Carlson [13:33]: "We have to respect these betting markets now as though they're real markets at this point?"

Michael Batnik [14:07]: "They're not real markets. They don't have an order book... but there are people going on there expressing a view."

Josh Brown shares unexpected insights from prediction markets accurately forecasting state-by-state results, challenging his initial skepticism about their reliability.

Josh Brown [15:26]: "This either was proven to be wrong last night or was coincidentally... we don't know."

Callie Cox anticipates a future where prediction markets play a more significant role in shaping public sentiment, potentially overshadowing traditional media polling.

Callie Cox [15:59]: "They replaced Nate Silver last night... the pollsters are done."

5. Asset Class Movements Post-Election

[31:00 - 35:36]

The panel analyzes the dramatic moves across various asset classes following the election. Notably, financial stocks soared, with institutions like Wells Fargo and Bank of America experiencing substantial gains. Conversely, traditional safe-haven assets like gold and bonds saw declines.

Ben Carlson [31:18]: "Wells Fargo up 30%. Bank of America up 7%... these are wild moves."

Michael attributes the surge in financials to expectations of deregulation and favorable corporate policies under the new administration.

Michael Batnik [31:44]: "I think it's deregulation and the expectation that banks are going to be able to buy more shares and pay more dividends."

In contrast, gold and bonds were adversely affected due to anticipated increases in interest rates and reduced demand for safe-haven assets.

Ben Carlson [34:02]: "The dollar and treasury yield soared... banks and Bitcoin all are easy to fit to Trump's promises."

6. Inflation Concerns and Breakeven Rates

[36:13 - 44:42]

A critical segment of the discussion focuses on inflation expectations, as indicated by breakeven rates. Michael Batnik explains the significance of breakeven rates in assessing market sentiments about future inflation.

Michael Batnik [42:32]: "Breakevens are telling us that like, oh, okay, we're going a little overboard here. I would worry about this a little bit more. Inflation may be coming back as a risk."

Callie Cox views the current real yields on Treasury Inflation-Protected Securities (TIPS) as attractive investments amidst rising inflation concerns.

Callie Cox [43:52]: "Real yields on two, fives, and tens... I don't know, TIPS sound pretty good to me in this environment."

Josh Brown underscores the importance of TIPS as easily accessible investment vehicles for those wary of unexpected inflation.

Josh Brown [44:17]: "One of the great things about modern times is TIPS are really easy to buy for anyone because you could buy it in an ETF form."

7. Policy Implications and Future Outlook

[44:37 - 51:34]

The panel shifts focus to the potential policies President-elect Trump might implement, covering fiscal policy, trade, immigration, and deregulation. They discuss how these policies could impact various sectors and broader economic trends.

Michael Batnik [47:10]: "Foreign-born workers are 20% of the labor force right now... supply and demand."

Ben Carlson [50:45]: "The conclusion here is that tax has had a bigger effect on earnings than interest expenses."

Gina Martin Adams' insights from Bloomberg Intelligence are highlighted, emphasizing the significant role of corporate tax rates in influencing market performance.

Josh Brown [49:07]: "Gina Martin Adams wrote a really good piece on her thoughts around markets and how they'll digest all of Trump's policies... corporate tax rate is going to be the biggest driver."

The panel debates the potential for continued market rallies versus risks associated with aggressive policy shifts, particularly regarding deregulation and tax policies.

8. Historical Context and Sentiment Analysis

[51:34 - 57:54]

Josh Brown presents historical data on market returns following election days, comparing the immediate and long-term performance of the S&P 500.

Josh Brown [52:16]: "Presidential election days one month later, the S&P 500 has historically since 1950 been up 0.8%, versus up 0.7% for all other days."

Michael Batnik cautions against overinterpreting this data due to the small sample size and unique characteristics of recent elections.

Michael Batnik [54:07]: "Two of the most recent presidential election days were in 2000 and 2008... the sample size is really small."

Callie Cox predicts a surge in market sentiment numbers in January, driven by political developments, regardless of the underlying economic fundamentals.

Callie Cox [54:23]: "Sentiment numbers are going to rocket higher in January than we are the stock market."

9. Closing Reflections and Takeaways

[57:54 - 61:54]

In the closing segment, the panel reflects on the broader implications of the election results on investor sentiment and economic outlooks. They acknowledge the role of recency bias and hindsight bias in interpreting the election's impact, emphasizing the complexity of correlating political outcomes with market performance.

Ben Carlson [56:51]: "Look in their mirror like you should. This should have been obvious."

Michael Batnik [57:54]: "Generally the thinking is gradual, controlled improvements... this isn't what we're going to see over the next few years."

Josh Brown shares his belief that Americans prioritize combating inflation over addressing unemployment, highlighting the pervasive impact of rising prices on voter sentiment.

Josh Brown [60:00]: "I think Americans would rather have 6% unemployment than the cumulative 27% inflation that we've experienced."

The panel concludes by reiterating the importance of staying informed and adaptable in the face of evolving economic policies and market dynamics.

Josh Brown [60:22]: "Inflation probably had a higher impact on this election than... the full employment."

Key Quotes with Timestamps

• Josh Brown [03:30]: "This was a low, low VIX election... everything was very smooth."

• Callie Cox [11:17]: "18% of Russell 2000 stocks are up 10% or more today."

• Ben Carlson [31:18]: "Wells Fargo up 30%. Bank of America up 7%... these are wild moves."

• Michael Batnik [42:32]: "Breakevens are telling us that like, oh, okay, we're going a little overboard here. I would worry about this a little bit more. Inflation may be coming back as a risk."

• Josh Brown [44:17]: "One of the great things about modern times is TIPS are really easy to buy for anyone because you could buy it in an ETF form."

• Ben Carlson [49:06]: "A lot of the hold on every..."

• Callie Cox [54:58]: "Someone asked me if I think we're more likely to get a recession in the next four years?"

• Michael Batnik [57:54]: "Generally the thinking is gradual, controlled improvements... this isn't what we're going to see over the next few years."

Concluding Thoughts

The post-election special of The Compound and Friends offers a comprehensive analysis of the immediate and potential long-term economic implications of the election results. The panel adeptly navigates through complex topics such as market volatility, sector-specific rallies, inflation fears, and the influence of prediction markets. Their insights underscore the multifaceted relationship between political outcomes and market behaviors, providing listeners with a nuanced understanding of the evolving financial landscape.

Investors are encouraged to remain vigilant and adaptable, recognizing that while initial market reactions offer critical signals, the sustainability of these movements depends on a myriad of factors including policy implementations, inflation trends, and global economic conditions. As the new administration begins to shape its economic agenda, the discourse among The Compound and Friends suggests a cautious optimism tempered by realistic assessments of potential risks and challenges.