Podcast Summary: The Compound and Friends

Episode: "These Are Wall Street’s Predictions for 2026"
Date: December 24, 2025
Host(s): Downtown Josh Brown, Michael Batnick
Special Guest: Sam Ro (The Ticker, Substack)

Episode Overview

In this year-end episode, Josh Brown, Michael Batnick, and guest Sam Ro dive deep into Wall Street’s outlook for 2026, breaking down the S&P 500 price targets published by major strategists. The conversation covers the role of these forecasts, the reliability (or lack thereof) of market predictions, current market drivers (especially AI and profit margins), sector-level expectations, and major surprises of 2025. True to their style, the hosts mix insightful financial analysis with candid, sometimes humorous, commentary.

Key Discussion Points & Insights

1. Wall Street’s S&P 500 Price Targets: Art or Science?

[06:37-13:32]

• Sam Ro's Take: Wall Street strategists publish S&P 500 targets out of necessity ("independent groupthink")—not because they believe in them. It's primarily content marketing—"the best form of content marketing because the papers pick it up" (Josh, 09:25).
• Historical Context: Price targets almost always imply 8-10% annual returns—"the average throughout history when it comes to strategist price targets amounts to 8.9%" (Sam, 12:05)—but the market almost never actually delivers exactly that.
• Reality Check: “8 to 10% price return has happened four times since 1950. Almost never.” (Sam, 13:01)
• Margin of Error: Over 25 years, the actual margin of error for these targets is ~14 percentage points.

2. 2026 Outlook: Forecasts, PE Ratios, and Bullishness

[13:32-20:46]

• Consensus: Most strategists are bullish on the S&P 500 for 2026, targeting returns between 3-16%. Even the most "bearish" are still calling for positive outcomes.
• PE Multiples: A key debate—half of strategists now say abnormally high forward P/E ratios (21-22x) are justified, referencing AI, efficiency gains, and structural profit margin improvements.
  • "This is like the first year maybe ever where ... you are significantly above the historical average [P/E], ... and half of the strategists are saying this is justified." (Sam, 18:41)
• Bubble talk fading: Despite mid-year "AI bubble" concerns, talk about bubbles has collapsed (and so have exuberant AI stock rallies), which the hosts see as healthy for the market.

3. Market Drivers in Focus: AI, Profit Margins, and Macro

[21:32-25:19]

• AI’s Role: AI and anticipated Fed rate cuts are the backbone of bullish estimates. "Wilson expects earnings per share across the S&P 500 to rise 17% in the coming year… Supported by stronger pricing power... efficiency gains tied to AI..." (Josh, 22:30)
• Operating Leverage: Companies continue to benefit from pandemic-era cost restructuring and capex, keeping profit margins high.
• Midterm Election Seasonality: Historically, midterm election years (like 2026) see heightened volatility and significant intra-year drawdowns (~18%).

4. Earnings Estimates: Accurate Fundamentals, Fuzzy Multiples

[25:19-28:08]

• Solid EPS Forecasts: After removing outlier years, the average error in S&P EPS forecasts is just 1%.
  • “Analysts came into 2025 predicting ... 274 [S&P] EPS; it's at 271 now. This is a rounding error.” (Sam, 27:14)
• Multiples Create Uncertainty: Where predictions diverge is in the multiple assigned to earnings, which is nearly impossible to forecast.

5. 2025 Market Review: Surprises, Sector Highlights, and Performance

[33:25-44:44]

• Stock Performance Standouts:
  • 15 S&P 500 stocks doubled in 2025—a record not seen since 2013.
  • Not just AI: Warner Brothers, Tapestry, Robinhood—diverse stories drove outperformance.
• Mag 7’s Waning Dominance: For the first time since 2021, the “Mag 7” stocks accounted for less than half of S&P 500’s annual gain (8% out of 17% total).
  • "The concentration crying should stop… actually they are not contributing to the upside of the market to the extent that they used to." (Josh, 41:07)
• Small Cap Comeback: Russell 2000 outperformed every S&P 500 sector post-November, as expectations of rate cuts and yield curve normalization favored small caps.
  • "That's a goddamn bull market." (Josh, 45:38)

6. Consumer Trends & Macro Commentary

[46:01-49:59]

• Cars get expensive: Average new car price surpassed $50k, average monthly payment hit $760.
  • “These prices are in response to this willingness of the consumer to pay... they’re not paying it at gunpoint.” (Josh, 47:41)
• Consumer resilience: Despite affordability concerns, lending is strong and auto companies (like Ally) are thriving.

7. Private Markets & Risk Reduction

[50:02-53:50]

• Mark Rowan/Apollo cautions: Apollo’s CEO is in “risk reduction mode,” pulling back on riskier exposures—especially in leveraged loans—citing high prices, stubborn rates, and geopolitical tensions.
• Hosts’ Analysis: In private markets, "reducing risk" typically means slowing new investments and being more selective, not rapid selling as in public markets.

8. 2025’s Biggest Surprises (“End-of-Year Awards”)

[53:51-61:31]

• Gold’s Outperformance: Gold up ~69%, Bitcoin down—defying expectations for “crypto-palooza.”
  • "Gold is up 69% year to date and bitcoin is down. Unreal." (Michael, 54:31)
• Netflix’s HBO Bid: Netflix, who rarely acquires, sprang for HBO in a surprise move (still pending).
• International stocks & tariffs: Stellar performance from Japan and global equities, while tariff announcements fizzled as market-moving stories.
• Robinhood as Stock of the Year: Up ~250%, became S&P 500’s top performer and a symbol of deregulation.

9. “Make the Case”: Japan’s Stock Market

[61:46-67:44]

• Josh’s Bullish Pitch: Japan’s equity market smashed records—Nikkei 225 up 26%—on reforms, yield hikes, and fiscal stimulus.
  • “Still a much cheaper market than the US, with a lot of fundamental drivers.” (Josh, 67:44)
• Berkshire was early: Buffett’s big bets on Japanese “trading houses” (Mitsubishi, Mitsui, etc.) paid off.
• Hosts’ View: Japanese stocks remain attractively valued at 16x earnings.

10. Final Visuals, Sector & Industry Group Review

[67:44-69:07]

• Banks vs. “Alts”: Traditional banks returned 31% vs. 9% for alternative asset manager stocks—even as PE fundraising stayed strong, revealing a surprising dispersion in finance-sector performance.

Notable Quotes & Moments

• On Wall Street forecasts:
  • "Independent group think. No one really likes doing this. No one ever claims to be good at it, but it's either asked of them ... or the clients ask for it." – Sam Ro [08:01]
  • "It’s better than buying an ad. ... As a firm-wide view, it would be front page news." – Josh Brown [09:25]
• Strategist Accuracy:
  • "8-10% price return has happened four times since 1950. Almost never." – Sam Ro [13:01]
  • "The quality of research is reflected in ... these earnings estimates coming into the year are usually very accurate. Where the price targets go wrong is multiple." – Sam Ro [27:14]
• Profit Margins & AI:
  • “If [profit margins] go up, forget about it.” – Josh Brown [30:26]
• On bubbles & valuation:
  • "Bubble is one of these tricky words where everyone has a different definition for it." – Sam Ro [21:56]
  • "[AI bubble talk] collapsed ... nobody is saying bubble anymore." – Josh Brown [21:30]
• On Market Cycles:
  • "... We all get a great laugh six months into the year when it looks nothing like what most of them said. It’s part of the cycle we’re all in.” – Josh Brown [33:00]
• On Robinhood:
  • "Robinhood became the stock of the year, up 220%, ... the number one performing S&P 500 name." – Josh Brown [59:53]
• On Japan’s resurgence:
  • “[Japan’s market is] still a much cheaper market than the US ... with a lot of fundamental drivers.” – Josh Brown [67:44]

Important Timestamps

• Wall Street Price Targets: History & Marketing – [06:37-13:32]
• Current 2026 Consensus & Bulls/Bears – [13:32-20:46]
• AI, Efficiency, and PE Justification – [20:46-23:08]
• Earnings Accuracy vs. Multiples – [25:19-28:08]
• 2025 Market Recap: Doubles, Standouts, Sector Review – [33:25-44:44]
• Small Cap Rotation & Russell 2000 – [44:44-46:01]
• Consumer Trends (Cars, Loans, Affordability) – [46:01-49:59]
• Private Markets/Mark Rowan’s Risk Take – [50:02-53:50]
• Biggest Surprises of 2025 – [53:51-61:31]
• Japan’s Stock Market: Bullish Case – [61:46-67:44]
• Banks vs. Alts: Visuals & Interpretation – [67:44-69:07]

Tone & Style

The show maintained its typical blend of sharp market analysis, friendly banter, and irreverent humor. The hosts are refreshingly candid about the limitations of predictions (“nailing it should be the last thing you expect”) and skeptical of prevailing narratives, while enjoying a healthy appreciation for data and market cycles.

For Listeners in a Hurry

• “Most strategists are bullish, but history shows they almost never get the number right—what matters is their directional thinking.”
• “AI, operating leverage, and potential Fed cuts buoy optimism.”
• “EPS forecasts tend to be pretty accurate; multiples, not so much.”
• “2025’s winners were not all AI—diversity reigned, with small caps rallying hard.”
• “Robinhood, gold, Japan, and international stocks all delivered huge surprises.”

This episode is a must-listen for investors seeking smart commentary on market narratives and the uses—and abuses—of big financial predictions.