Loading summary
Transcript270 lines
- [00:00]
A
Ladies and gentlemen, welcome to the compound. And friends, I want to tell you guys that we are heading into Christmas and I just want you to know how much all of us appreciate all of you. And we want to wish you a happy holiday. And of course, we want to wish you a happy New Year. And it's just been such a pleasure and such an honor doing this show for you guys week in, week out, and all the live events and getting to meet so many of you and seeing your messages and all of the wonderful things that you tell us about your investing and your lives and where we fit into your lives. So on behalf of everybody on the team, I want you to know we're thinking about you this holiday season and we love you right back. All right, tonight's show is sponsored by Betterment Advisor Solutions and Rocket Money. More on Betterment and Rocket Money in just a moment. Tonight's show we're gonna have what are your thoughts? It's a gigantic episode of what are your thoughts? Our friend Sam Rowe stopped by to help us break down the 2026 Wall Street Strategist S&P 500 price targets. And that's always a fun conversation and we do a whole lot more. It's a great show. You're gonna really enjoy it. And I'm gonna send you. Two the compound and friends. All opinions expressed by Josh Brown, Michael.
- [01:27]
B
Batnik and their castmates are solely their.
- [01:30]
A
Own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Microphone check, 1, 2. We are live in the chat. Cam Rackham, 791 says, I can't believe TCAF didn't go dark on us legends. You're damn right. We love you guys. This doesn't feel like work. Just so you are all aware, we do this because we love it. Let's see who else is in the chat. Magnus is here. Georgie D, Dr. Doc 88 DXL says gold is extended. We'll get to that, I think. Is the show live tonight? Yes. Is Josh the hardest working man on Wall Street? You know it. All right, guys, thank you so much for coming to the live. We appreciate it. Shout out to everybody on YouTube. Shout out to you if you are listening on Spotify, on Apple Music. We really don't care where you consume the show. We just appreciate you that you're here. And let me reintroduce us. For those of you who are checking us out for the first time, my name is downtown Josh Brown. My co host is Michael Batnik. Michael, say hello.
- [03:10]
B
Hello. Hello.
- [03:11]
A
We are here to glaze you with the biggest headlines in finance. And did I say that right? Did I do that term right? All right. I'm not. I'm not Gen Z. I don't really know. I don't really know what I'm doing. All right. We have an ad read for one of our favorite sponsors. Perhaps our favorite sponsor. I don't know.
- [03:30]
B
That's right, Josh. Our show today is brought to you by Betterment Advisor Solutions. If you happen to be thinking, gee, there's gotta be a better way to grow my Ria, you're not alone. With Betterment Advisor Solutions, we do the heavy lifting so you can focus on what matters most. Your clients. From improved service that makes asset transition smoother to fast paper free onboarding that delights clients. On day one, we've built a digital first platform designed to streamline your operations and make life easier. Now, if you're thinking, wow, they take the paper out of paperwork, you're right. Grow your rea your way with Betterment Advisor Solutions. Learn more@betterment.com advisors. Investing evolves. Risk performance not guaranteed.
- [04:12]
A
You crushed that read. You did.
- [04:14]
B
Thank you. Today's show is brought to you by Rocket Money. Rocket Money is a personal finance app that helps find and cancel your unwanted subscriptions, monitors your spending, and helps lower your bills so you can grow your savings. I've said this before, and I'll say it again. One of my favorite things to see in my inbox is refund detected. Boom. Hit the app. What's this? Oh, returns. Love to see it. Money back. Rocket Money's dashboard gives you a clear view of your expenses across all of your accounts. Rocket Money has over 5 million users and has saved a total of $500 million in canceled subscriptions, saving members up to $740 a year when they use all of the app's premium features. Cancel your unwanted subscriptions and reach your financial goals faster with Rocket Money. Go to rocket money.com compound today. That's rocket money.com compound rocketmoney.com compound someone's.
- [05:08]
A
Asking what's on buk09 wants to know what's on Michael's hat. What's on your hat?
- [05:17]
B
Why don't you explain it, Josh? What's the story here?
- [05:18]
A
Seagullman Stable. That's. Guys, that's Seagullman Stable. Coming.
- [05:24]
B
Oh, do we have a surprise guest what in the.
- [05:29]
A
Oh, my God. Fan favorite Sam Rowe, ladies.
- [05:32]
B
And there he is.
- [05:33]
A
From the Ticker substack. Welcome, Sam. So great to see you, my friend.
- [05:39]
C
Thanks for. Thanks for having me. I wasn't sure anyone was going to answer. Yeah.
- [05:42]
A
Were you just in the neighborhood? What's this? What's the deal? You just popping?
- [05:45]
C
Doing this is actually a complete accident. I have no idea what's going on. What is this?
- [05:51]
A
All right, so if you click the comments tab, you'll be able to see for yourself. The crowd is literally going wild. I got Sammy the Bull, people chanting. People are super excited. So we're going to start. It's. So it's such a great coincidence that you're here. We're going to start the show tonight with Wall street's predictions for 2026, the S&P 500 targets, and the like. And in my estimation, you are the foremost authority keeping the strategists honest, explaining the story behind the story of how these estimates come to be, why Wall street pays attention to them, what you can get out of them, what you can't. And we're just. We're super lucky to have you to help us break this down. So thank you so much for stopping by. Completely coincidentally.
- [06:38]
B
Unbelievable. Before we get to 2026, and I know you're all over it, as you always are. Let's look back before we look forward. So Mike Antonelli sent me this chart without the red line. And Bloomberg did a version of this. And I said, you know what? I got to get chart kid to enhance this. So he did. And what we're looking at, for people that are listening, is the strategist year, year end price targets for 2025. And we're looking at the evolution of it. So there's one, one at the beginning, one in the middle, one in the end. And we all know what happened in 2025. We had liberation Day. The bottom fell out. And then what happened, Sam?
- [07:16]
C
And then we came back. The stock market went up because it usually goes up.
- [07:19]
B
That's true, but what about. What did the blue lines do? What are the strategists do?
- [07:23]
C
Well, I mean. Well, this happens every year, and this happens all the time. And every, you know, unfortunately, you know, there isn't some sort of, like, union of strategists that get together and they try to, like, articulate exactly like, what this process is.
- [07:37]
A
Like, they don't talk to. They don't really talk to each other. I know that for. I know that for a fact.
- [07:42]
C
Yeah. Like, some of them are friendly, but generally speaking. But here's the funny thing. Almost all I talked to a decent amount of them from the past as well. And most of them have sort of the same sentiment when it comes to this exercise.
- [07:59]
B
It's independent group think.
- [08:02]
C
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 director of research says you gotta do it or the clients ask for it and whatever. But I think the first time someone, well, not the first time but one of the more notable times someone actually talked about price targets and how to think of them came from RBC's Lori Calvacena who last year when she put out her note clarified that we're putting out this price target but don't think of it as a gps, think of it as a compass. And importantly, it's about thinking about how they think about the direction of the markets in a given moment and understand that as new information comes to light, they're going to tweak their models and then those near term targets and expectations are going to change over time. Time. So yeah, like listen, no one's, no one's expected, I mean listen, no one internally expects to nail this number but you know, it's asked of them and you know, it's funny, a lot of these strategists, you know, we've been in this business for a really long time, follow a lot of these people. A lot of these people will even go out and start their independent shops. Some will continue doing these, these price targets but most of them actually drop the whole practice altogether.
- [09:26]
B
The.
- [09:26]
A
Yeah, I think part of it's because this is the, one of the original content marketing ideas on Wall Street. This is, I mean this is 30 years of this and guys like Byron Wein were doing this shit in the 80s. Like this is, this is, this is like the best form of content marketing because the papers pick it up. Back when there was such thing as a newspaper, it would be front page. When Smith Barney or, or Merrill lynch. This is what the stock market's going to do next year. It was as big as you could get with a firm wide view of, of you know, and it, and it would, I don't think it would lead to like directly like people calling up the firm and being like, oh, let me open an account. But it was better than buying an ad.
- [10:12]
C
It's marketing. It's exactly, it's better than buying an ad. It's a way to communicate a view. And that's another Thing A lot of these strategists will also tell you it's like, as much as they want to talk about, people obsess over these targets, how right or wrong. And we can get into the mathematics and the stats of how accurate these things actually are later. Ultimately, it communicates a level of bullishness, or less bullishness based off of how they view or judge the fundamentals behind these calls, which is actually that much more, much more interesting and valuable when you do pay attention to these people's research.
- [10:51]
A
Well, let me quote you and then we'll get you to react to it. You said it's that time of year when Wall Street's top strategists tell clients where they see the stock market heading into the year ahead. The strategists, followed by ticker, have year end s and P500 targets ranging from 7,100 to 8,000, which would imply returns between 3.3% and 16.4% from early December, which I'm guessing is probably not that big of a change. You, you note, following three consecutive years of above average gains, some of these targets may seem aggressive, but historically, targets tend to assume 8 to 10% returns consistent with the midpoint of this year's predictions. So they're nothing if not consistent. It basically works out to an 8 to 10% call. And of course, as we talked about here on the show, the irony is it's never up 8 to 10%.
- [11:47]
C
Right. Yeah. So Bespoke Investment Group actually published a report last week and they did do some historical analysis going back to 2000, which is, I mean, basically that's when Byron Wein, those guys are starting these prices.
- [12:04]
A
It's the modern economy.
- [12:05]
C
Yeah, yeah, modern economy, modern market. You know, brokerage, marketing and all that stuff. And yeah, the average throughout history when it comes to Australia's price targets amounts to 8.9%, which is that sweet spot of that average, 8 to 10%.
- [12:21]
A
You know why? But, yeah, because you don't seem crazy. You don't seem crazy. If the market goes up 20%, all right, I told you it'd be a bull market. And if it's down, you didn't say plus 20.
- [12:33]
C
And it's very intuitive. Right. The first thing anybody learns when it comes, you know, why do you invest in the stock market? Well, you can get 8 to 10% return average annual returns over your lifetime. But you know, that, that's, that, that's incredibly misleading without some context. And you know, our friend Ryan Detrick at Carson Group, you know, runs all these numbers all the time. 8 to 10% price return has happened four times since 1950.
- [13:02]
A
Almost never.
- [13:02]
C
So it's like, yeah, it never happens. It never happens. And getting back to that bespoke study, they also note that while the average target over the past 25 years expects 8 to 9% returns, the margin of error is about 14 percentage points relative to what has actually happened in the past 25 years. So, yeah, they never nail it. If anything, nailing it should be the last thing you expect.
- [13:32]
A
Couple things. Almost no one's bearish. You note that the consensus is looking for earnings growth next year of 14%. And some of the more conservative strategists who are not out, out and out bulls are basically saying that we would probably get multiple contraction, which is how they would explain rising earnings. But a not so hot bull market for stocks. The last thing, the last thing is you note, and this is from Sam Stovall, the entry year drawdown for midterm election years, which is what this is going to be 2026, since 1946 averaged 18%. So averaged. So, like a lot of the time we get an entry year bear market in these midterm election years. Is that coincidental or is that driven by concerns over political outcomes? What do you think that's about?
- [14:27]
C
Yeah, I mean, it is political concerns. And it's something that I think a lot of people might expect of 2026, especially with everything going on with politics. But it definitely happened in 2022, and there were a handful of strategies pointing that out that, I mean, even people who are super bullish or known to be super bullish, like Tom Lee at Fundstratch. You know, I remember back then him saying that, like, hey, actually, I'm pretty sure it was actually in a 2022 episode of the Compound and Friends, he comes on and says, you know, if there's anything to be concerned about, it's that seasonally, midterm election years tend to be pretty weak. And the next thing you know, we get a bear market.
- [15:09]
B
Yeah, definitely. It definitely wasn't a historic hiking cycle. It was, it was the calendar.
- [15:14]
C
Yeah, so, so, so everyone is, is, you know, they caveat their expectations or their forecasts with this seasonality. But getting back to this whole thing about, like, everyone being bullish and everyone having targets that are above, you know, expecting positive returns. That's historically has always been the case after strong years. And after weak years, they don't lower.
- [15:42]
A
Their targets until after the market falls, like in April. That's of this year. That's when they. That's when they have the lower target.
- [15:50]
C
Yeah, exactly. You know, it's. It wasn't like as well. I mean, you know, even before Liberation Day, you know, the market was correcting since sort of the middle of February. So some, you know, some people are coming out with this idea that the mark, you know, the market could disappoint this year. And then, of course, you have Liberation Day at the beginning of April. Everyone slashes their targets. And our friend Neil Duttas says this often when analysts or strategists or economists start tripping over themselves to cut their estimates, that's when the inflection point sets in. And that's actually what happened this year. Everybody comes out after Liberation Day and says everything's going to be terrible. And then within a week, the market bottoms and then we inflect higher.
- [16:39]
A
I want to get to some of the commentary for this coming year. So let's put up. Let's put up this table. If you're looking at this on a phone, I don't know what to tell you. But this is just broadly speaking, like, where everyone seems to be. Do any of these in particular jump out? This is everyone from Tom Lee at Fundstrat Global, who is continuing to do price targets. Deutsch, cfra, Morgan Stanley, Citi, Goldman. Which of these, Sam, caught your eye the most?
- [17:17]
C
I think this might catch other people's eyes, but this didn't surprise me because I remember reading Mike Wilson's note a year ago. And Mike Wilson is at Morgan Stanley. He's the chief US Equity strategist at Morgan Stanley. You know, he's part of this group this year that is coming out and saying, we know, you know, a 2122 forward PE on the S&P 500 is way higher than the historical average. And historically, everyone says, well, you know, we're going to. This is too high. This is a headwind. We expect this to come down to maybe 21, 20, maybe even 18. This is a big headwind that's limiting our upside gains. He's one of these strategists saying that, you know what, it might actually stay this high. It might actually go higher, it might lose a point, but we expect it to be above average this year. And I think about half of the strategists and this was completely surprised me this year because, you know, this is like the one thing I actually pay attention to in these outlooks is what are they saying about PE ratios? They always say it's a headwind, but this is like the first year maybe ever, where you are significantly above the historical average. You know, nobody likes 21, 22 times forward PE. And half of the strategists are saying this is justified.
- [18:41]
B
Sorry too Sam. That stood out to me as well. So the thing that caught my eye looking through this is Julian emanuel@evercore isi. He has one of the lowerish. Well, that's not even true. I'm sorry, what he has that's lower than everybody else. He has the lowest EPS expected, the absolute lowest, if I'm reading this correctly. And yet his price target is right down the fairway. Why? Look what his implied PE is. It's 26 times.
- [19:13]
C
Yeah, so this is, this is something that, you know, if you read between the lines and some, some strategists will actually come right out and tell you about the possible presence of bubble or bubble risk. I think the Wells Fargo note mentions bubble a couple of times, not saying that this is a bubble. Capital Economics is another smaller firm that does a lot of research on this too. Bubble language is coming up in these research notes. Now here's the thing, people can go on TV and say, oh, bubble, this is a huge risk, all these things. We're at risk of a big downturn, whatever. But the strategies have done the work behind this. And again, they might be reluctant to commit to this idea. But understand that when there's a lot of excitement when it comes to new technology or whatever, history says you might have extended periods of high price multiples. And so it's not crazy. It's like you might not want there to be a bubble. You might think a bubble presents a high risk at some point in the future. But you know, for now, if you're convinced, which is what I think most people are convinced of, if you're convinced that we're still sort of in the early innings of this whole AI build out and the CapEx and the earnings growth potential and the productivity potential of all this stuff, then yeah, if you're going to put out a one year target, then you might have to have a higher PE multiple than what you're comfortable with.
- [20:46]
B
Well, interestingly, people came into the year 2025 saying that we're going to be in a bubble, that it's going to, it's going to, we're in the early stages, it's going to inflate and. Nope. John, chart on, please. So what we're looking at is the AI, the number of mentions in Bloomberg. Okay. And then AI bubble and mentions of AI bubble was in a Bubble which burst and of course Oracle falling 40% and all the air coming out of this and all the doubt about Sam Altman and the obligations will do that to you. But I think that what we just saw, the reset is super healthy and supportive of the wall of worry being rebuilt, that we have something to climb over next year because nobody is saying bubble anymore.
- [21:30]
A
Stopped all the bubble talk.
- [21:32]
C
Yeah, it's not, it's not indiscriminate buying. Right. It's not every company that has mentioned this going up at the same time, I mean, I think, I'm pretty sure like half of the Mag 7 is underperforming the Microsoft right now.
- [21:44]
B
If there was one publicly traded stock aside from the semis that is tethered to the AI story, it's Microsoft due to their relationship with OpenAI and SAM, to your point, Microsoft has underperformed the broader index. That's not what happens in a bubble.
- [21:57]
C
Yeah, so, so bubble, bubble is one of these tricky words where everyone has a different definition for it. It's like, it's like a recession. Everyone has a different definition for a recession. And then there's like rolling recessions and micro, there's BEA and nber and the same thing with bubbles too. But it's like, I think where we are when it comes to the strategists talking about valuations is this idea that people will go out on a limb and pay a premium for this year and next year's earnings because they think that there's something much more exciting.
- [22:30]
A
Well, here's what it sounds like. So this is Mike Wilson highlighted optimism for 2026 driven by Fed rate cuts and AI efficiencies. These are the two things that everyone's saying. Wilson expects earnings per share across the S&P 500 to rise 17% in the coming year. I think consensus is at 14, so not crazy. And another 12% the year after. Oh, you see, we're Already bullish on 28. Supported by stronger pricing power across many industries, efficiency gains tied to AI, business friendly tax and regulatory backdrop, more stable interest rate environment. That's consensus.
- [23:08]
B
17% earnings growth is wild on top of.
- [23:11]
C
I mean, well, something, something that Mike Wilson has been really great at. Has been talking about this profit margin story and he was actually talking about this back when he was considered one of the most bearish strategists on Wall Street. I think this was like in 2022 where he basically nailed the bear market or whatever. But in his note he was talking about expanding profit margins and operating leverage and all this sort of investment, and this is even before like the whole AI boom we're talking about. In the pandemic and post pandemic period, companies across industries did mountains of capex investment and they basically all overhauled their entire, you know, equipment infrastructures. Not to mention the fact that a lot of people don't have to pay for office space anymore because half their staff is working from home. But like there was a story that had been bubbling up, you know, in 2021 and 2022, this idea that the cost structures for companies have become so refreshed and lean and efficient that like just a little bit of revenue growth is going to get you that earnings growth.
- [24:21]
A
Yeah, this is that thing where like tough times in the market lead to great times. All of these companies got the message in 2022 that Covid era spending was out of control, hiring was crazy, salaries, raises. And they all said, okay, it's the year of efficiency. We're two and a half, three years past that moment and still reaping the rewards of that new religion. I want to get to a couple of more before we let you go, Sam. Tom Lee quote, After three years with over 20% annual returns, the bull market still lives in. Client commentary also said stocks remain poised for further gains, citing strong economic fundamentals and AI. So that twin thing, Savita at Bank of America, and she's a quant, our year end target is pretty lackluster. What was her, what's her target?
- [25:20]
C
I think she might be on the 7100 side, which from here is nothing. 7100, okay. Yeah, which, yeah, it's about 3%, which is interesting because she is one of the more vocal defenders of this idea that, you know, companies that they command a premium. She's, she was very early on pointing out that like, you know, the financial, the capital structures and the credit quality of companies today is much stronger than they were years ago. The revenue per employee is much higher today than they were years ago. The operating structures, profit margin, all these things that justify a higher premium to earnings as reflected by a higher PE ratio is justified. And she's one of these people as proponents of this. But of course she's now on the other side saying that I think that the high multiples might be kind of a headwind going into the year.
- [26:14]
A
Okay, she's in the bearish camp, but she's still not really bearish.
- [26:18]
C
Yeah, it's still positive. She's still forecasting a positive return. Which is, which is what's interesting about all this. Stuff. And we were talking about the earnings estimates. Right. You know, there's a decent range of EPS estimates that all these strategies have somewhere between 300 and 320 per share for the S&P526. But that's still at the low end. That's still double digit earnings growth year over year. Something that FactSet does this study, which is really cool, and they go back and see how earnings expectations beginning year compared to earnings expectations at the end of the year. They did this going back to 2000, excluding these crisis years like 2008 and 2007. Covid 2020. Outside of these very outlier years, the average margin of error between the earnings per share at the beginning of the year and what actually happens at the end of the year is about 1%.
- [27:14]
A
Wow.
- [27:15]
C
And like even, even this year at the beginning of the year, analysts came into the 2025 predicting on average 274 EPS for the S&P 500. Where is it at right now? 271. This is a rounding error when it comes to the earnings forecast. So something to be said about a lot of these strategies. This speaks to the quality of their fundamental analysis. And we can talk about analysts and companies massaging earnings or whatever, but the quality of the research is reflected in the fact that these earnings estimates coming into the year are usually very accurate. Where the price targets go wrong is multiple. The premium you put on the multiple. Yeah, and that's impossible.
- [28:00]
A
How can anyone do that? Right? Yeah. I mean, I guess you could use interest rates, you could use geopolitical risks, but like, honestly, you're making it up.
- [28:08]
C
Listen, everyone's tried to do that research and I did a post, I sent out a newsletter I think about exactly a year ago, trying to make these connections and it's like, especially on a one year basis, there is no relationship whether it's interest rates, whether it's strategist price targets, whether it's PE ratios, whether it's the Fed beginning to cut rate, whatever it is. Like there's no relationship between a single metric and one year returns following. You might get positive, really strong returns, you might get below average returns. It's so hard to predict what's going to happen in a given year.
- [28:47]
A
Sam, we're going to leave it there. You are one of our favorite people and I know the audience is so appreciative that you dropped by. Thank you so much. We'll talk to you soon. And happy, happy New Year, my friend.
- [28:59]
C
Thanks for having me.
- [29:00]
A
All right, cheers. Sam, let's run Through a couple of charts before we move on. Let's put up consensus expected earnings estimates. So what Sam is talking about is the earnings. So I'm in the camp that this is like the most important thing. And if this comes in as advertised, which of course we can't know for sure, I think it'll be a good year for stocks. Maybe not for Mag7 or maybe, who knows. But like just generally speaking, these, this, this type of rise in estimates, analysts are not so insane that they would get this directionally wrong. They might get the magnitude wrong. What do you think?
- [29:38]
B
Well, that's very not controversial.
- [29:41]
A
Yeah.
- [29:42]
B
Stocks follow earnings. So this is the only thing that matters. And I love the setup. Chart back on, please. I love the setup for small cap stocks. Not to do technical analysis on earnings expectations but, but not to not. Well, I mean I can't like, I can't ignore, I can't ignore it breaking out. But with lower interest rates coming, I think and with productivity gains coming, I think from AI you could see a material move higher. And if that happens and if these stocks get a RE rating higher because they're not expensive, you could see small caps. And I have that later in the dot you could see them smash next year, getting 30% or more.
- [30:20]
A
Give me this profit margin chart. Same story here.
- [30:23]
B
Same. Come on, man. If this goes up, forget about it.
- [30:26]
A
Yeah, I think you want to buy this breakout in profit margins. Yardeni was talking about 15% profit margins next year. Can you imagine? Nobody's ready for that. That'll. That'll give you your 21 times multiple. That'll justify your, your 21 multiple.
- [30:42]
B
I'm so annoyed. I had chart Goat make an incredible chart on the top 100 margins versus the next 400 I forgot to put in the dock. All right, we'll save that for the new year.
- [30:50]
A
We'll do it next year. All right. Expect expected earnings growth by sector. Let's spend two seconds on this. This is, this is nuts to me.
- [31:00]
B
Materials.
- [31:01]
A
We're looking for 28 and a half percent expected earnings for tech, followed by 21% for materials. And that's a commodity story that's playing out in commodity price. I sort of get it. Industrials 15% again, please. Don't get it twisted. That is, that is basically. That's, that's a build out. And I guess airlines real estate sucks only up 5.3% expected earnings for next year. Energy still sucks less than 7%. Staples. Fine. Not, not expecting fireworks there. But that's your, that's your setup. So people are, it's, it's not a shock to me that you see a freeport McMaran trading the way that it is lately. I look at alcohol.
- [31:52]
B
Have a look at Alcoa in a minute.
- [31:54]
A
Yeah, industrials have been very exciting into year end again. Shouldn't be a surprise. This is where people think we'll see the earnings growth. What else are we doing? Oh, earnings revisions. These are great charts. This is forward earnings revisions by sector on a, on a year to date basis. This is the analysts moving their estimates and what you can see is exactly what you'd expect to see. Tech and communication services and financials have had the biggest revisions, higher by far. And energy, of course, negative 10. So that, that's the, that's the setup going into next year. Any, any parting thoughts on Wall street consensus strategist targets for, for next year?
- [32:43]
B
No. I guess I would just close with what Sam said, which is we pay attention to the price targets, but like there's a whole report underneath this that they're going to actually get that is like 130 page PDF and it's very rich and nobody reads it.
- [32:56]
A
I used to, I used to make an attempt to read a few of them.
- [32:59]
B
I have time for that.
- [33:00]
A
I don't, I don't know that I've ever walked away from it and said, okay, this is something that I want to take action on. I just think, I think we all benefit from absorbing the opinions of very smart people and then we all get a great laugh six months into the year when of course it looks nothing like what most of them said. And that's part of the, part of the game. It's part of the, the cycle that we're all in. So. All right, you're up.
- [33:26]
B
All right, let's run through some charts. There's a real face blower here, Josh. I had chart goat Matt Sermonaro. Make me a chart showing the number of stocks that doubled this year compared to previous years. And we've got 13 year to date. And the surprising thing here is that's a lot of doubles, Josh. Yeah, more than. More than 2021, which was by all accounts a bubble. Like year 12 stocks gained 100%.
- [33:54]
A
Wow.
- [33:54]
B
So the most since 2013. How about that?
- [33:57]
A
Wait a minute. 13s and P 500 stocks doubled this year?
- [34:01]
B
That's right, Josh.
- [34:03]
A
Huh? I hadn't even really thought about it. You probably don't know this. I wonder if this includes stocks that joined the S and P during the course of the year versus stocks that started out in the S P. That.
- [34:18]
B
Is a good question. That is a good question. So I'll tell you, I'll tell you.
- [34:24]
A
We don't need to know the answer.
- [34:26]
B
No, I'm looking at the stocks. I got white charts right up here, as I always do.
- [34:29]
A
You have the doubles or the top performers?
- [34:32]
B
I got the doubles. All right, we're gonna start from the top. SanDisk 569. What she. Western Digital, SanDisk 293. Seagate, Micron.
- [34:46]
A
These are all stocks from the. The 20th century. I mean, these are the stocks. I. Yeah, these are the. I, I used to trade these stocks when I was 19 years old.
- [34:56]
B
Number five. So Robin Hood, that was added to the index this year, right? Newmont, Warner Brothers. Paler. Another one that was added. Lam Research, AppLovin, Comfort, Carvana, KLA Corp. I don't even know what that is.
- [35:11]
A
GE Vernova, same industry as a MAD. And Lam Research, it's semi capital equipment.
- [35:16]
B
And Tapestry, do you know what that is?
- [35:18]
A
Yes. Tapestry is the combination of Coach and. I want to say Michael Kors or Coach. And so it's a consumer.
- [35:27]
B
All right, so get, get this right now the number is 15. So there's two GE Vernova and Tapestry just climbed over. So we have 15 stocks year to date. John, throw that chart back on. We have 15 stocks. So the hot still the highest is 2013. Unbelievable. Not a bad year.
- [35:44]
A
You know what? It's actually a great year because it's not all AI stocks. Like it's. It's kind of cool that there was like a Warner Brothers special situation. Remember, I'm the idiot that bought it at 7, sold it a 10. But it's kind of cool that like there were a lot of other stories that worked that were not all AI. We make this point a lot.
- [36:06]
B
So this is a day old, so it looks a little bit different, but this is the year. These are the year to date returns for the s and P500 stocks. And we're looking at this, this visual from Finviz. Josh, anything stand out to you here.
- [36:20]
A
Or what Stands out? The more things change, the more they stay the same. What grabs your eye? Amazon, Tesla, Google, Nvidia, Metta, Microsoft. And I know some of these stocks are decently off their highs. They still all had great years.
- [36:34]
B
Whoa, whoa, whoa, whoa, whoa. Amazon did not have a great year.
- [36:37]
A
It's a 4% fine. That's the last.
- [36:40]
B
Apple's up 8%.
- [36:41]
A
Yeah, but Apple made a record high in.
- [36:45]
B
It's up 8%. There's not a Great year. Google had a great year. So Nvidia is up 40% year to date. I didn't realize that Nvidia was having such a strong year. I guess I forgot because it got.
- [36:56]
A
Did it hit 190 today again?
- [36:58]
B
It had a very good day but Nvidia's had a, had a roller coaster of a year. The stock from Liberation Day, it fell from like 150 down to 86.
- [37:10]
A
Dude, it lost a trillion dollars or something during that, during that pullback it.
- [37:15]
B
Fell more than 40% and then it went from 86 up to 210 back down to once. I mean it's, it's had a hell of a year.
- [37:25]
A
But put the chart back up. Here are some big standout stocks. These are my candidates for stocks of the year. Lily and Walmart. Walmart is on the verge of joining the trillion dollar club and has completely transformed itself into a tech giant that happens to be really good at retail. And monster, monster year, not just it didn't go up 500% but just like this emergence of the company and last week officially it began trading on the nasdaq, which is super interesting to me. It's the largest company ever to switch exchanges.
- [38:04]
B
I didn't hear that.
- [38:05]
A
New York stock. Yeah it was New York Stock Exchange just went, went to nasdaq, which I find fascinating. Lily hit a trillion dollars, became the largest healthcare company in the world largely on the basis of the obesity and, and diabetes drugs of course. And I thought that was a really big story. JP Morgan to me is personally it's a big story. It's one of my longest held stocks. Berkshire Hathaway, Charlie Munger died. Warren Buffett announced his retirement. Stocks going to finish the year green and fairly close to $1 trillion or.
- [38:42]
B
Trillion dollars on the financials front. So JP Morgan up 36%. Wells Fargo up 35%.
- [38:47]
A
Citi up 70.
- [38:48]
B
So yeah, the thing, Citi, Citi is up 70%. Morgan up 43. Goldman up 57. And are there areas of the, of the financials that I was long in there in the year and I've since sold. They didn't really work at all actually. S and P, Global Intercontinental Exchange, New York Stock Exchange CME had a good year but like capital markets did not. Well, they did okay.
- [39:11]
A
Here's who had a, here's who had a bad year, very bad year. Salesforce, UnitedHealth. The CEO got shot in the street. The stock is still in a 30 or 40% drawdown. I can't squint and see it Just a horrible, Horrible year for UnitedHealth. Really bad year for Nike, really bad year for Chipotle.
- [39:33]
B
Target.
- [39:34]
A
Starbucks basically sat out the rally. It's not down, but it's not up. Target annihilated. These are some pretty big American brands and they're not giant market caps because I barely see them on this thing, on this graphic in front of me. But those are some of the standout negative stories of the year.
- [39:52]
B
The other two negatives, and these are more broadly broad software stocks. We mentioned Salesforce, but just chart back on the whole group. Adobe Service now, now, like a lot of them had a really rough year. And then the other area, and this is a little bit smaller, next to Google and Meta are the telecommunication stocks. Charter down 40%. Comcast down 21%.
- [40:15]
A
T Mobile, I don't even follow those. I had no idea Charter was that bad.
- [40:20]
B
Really bad. So it was a mix. It was a mixed year. Like winners and losers. Which is, which is awesome. All right, next chart. So Matt made me this chart and we're looking at this. On top is the S&P 500 return. So you see, you see the 493 in gray and you see the Mag 7 in blue. And then on the bottom you see the Mag 7 contribution to the overall gain. And for the first time since 2021, the Mag 7 was responsible for less than half of the overall move. So the index is up 17%. The MAG7 contributed 8% of that. So still huge, obviously. Can't not be. But this is good stuff, right?
- [41:08]
A
But this is great news for the people who stayed the course and didn't listen to all that concentration over the last couple of years that's kept people from making money. The people that bought into that narrative that Vanguard and BlackRock ruined capitalism and that it was a huge risk to the stock market because if anything happens to Apple and Nvidia, we're all in trouble. Like the people that bought that hook, line and sinker, I think sat out a lot of the gains of this year and probably last year. And this, this news that not only are a lot of these Mag sevens in disperse situations at this point and not moving up in lockstep along with ETF inflows, but actually they are not contributing to the upside of the market to the extent that they used to. That concentration crying should stop like right now. What do you think?
- [42:02]
B
Well, I do agree that I don't like if people are using that to scape up out of the market, but it is true. I mean the top 10 stocks are like 45% of the index, whatever it is. So if they were to come crashing down, but like yeah, no shit. Obviously if they come crashing down, we're all going to be in pain.
- [42:15]
A
They did, they came crashing down. The world didn't end. They came crashing down in March and half of them came crashing down in November. And, and it. We know what happens. People, people reallocate. Maybe not to another stock, but the money does not sit idle in people's brokerage accounts. It just doesn't. Not a 3.75 interest. It's not.
- [42:42]
B
Look at this next chart. This is a, this is a beauty. So we're looking at the S P500 year to date returns in bubble charts. And on the left hand side, as we mentioned, you've got all these stocks that are doubling all the way. On the other side you've got the stocks that got killed. Trade desk Lulu, which we spoke about.
- [42:59]
A
I love this visual.
- [43:00]
B
This is so. And then the middle of the pack, it's the Mag 7 names. And yeah, the, the market caps are huge. So they still accounted for half of the returns basically. But like I think only two of them are outperforming. Google and Nvidia maybe actually Tesla. Tesla.
- [43:16]
A
Tesla's having good year.
- [43:17]
B
Yeah. But Microsoft, Meta, Apple, Amazon, middle of the pack all underperformed.
- [43:23]
A
Yeah. Now given their size, I mean it's actually great to pull out an 8 or 10% year and underperform the S and P. But still on a total return basis, be a great place to have your money invested. Like Apple I feel like is having a decent year in that regard. Like it, it held up despite some pretty vicious narratives about things the company was screwing up.
- [43:47]
B
Yeah. 9%. 9% total return for 4 trillion dollar stock ain't bad. All right, let's move on to the Russell. So Duality Research has this unbelievable chart where they show the S and P 500. Okay. That's the black line, the big black line. And then they sh. And then they show the relative performance of these sectors on a cap weighted basis versus an equal weighted basis. And the big takeaway here is they also throw in the black line on the relative side. Okay. And the takeaway is the Russell 2000 has not only been in large cap since the November lows, but it has actually outperformed every single S&P 500 sector.
- [44:30]
A
Wow.
- [44:30]
B
See the two black lines on the right?
- [44:32]
A
Yeah.
- [44:33]
B
That's the Russell 2000. How's that?
- [44:36]
A
Right, so that's a fancy way of saying regional banks had a Good end to the year. Basically the driver for the Russell 2000 is rates coming down, the promise of more rate cuts next year and the yield curve steepening sufficiently so that the regional banks got some love because that's what's really dominating the the, the sector.
- [45:00]
B
It's 19. The biggest weighting is health care industrials too. Healthcares and industrials and financials and, and so it's, it's not just banks. I mean obviously that's not, not part of it, but. All right, one more, one more on, on the Russell 2000. So on the top we've just got the price breaking out to an all time high. It's certainly been a minute. My God, it's been a minute. Then they show the Russell 2000 versus the S&P 500. Maybe at an inflection point. We'll see, who knows. It's been obviously in a downtrend for years. Downtrend potentially members above the 200 day. Looking good at the upper end range.
- [45:35]
A
What's the number?
- [45:36]
B
Is that 67.
- [45:38]
A
67% of Russell 2000 stocks are above their 200 day? Yeah, that's a goddamn bull market.
- [45:44]
B
Yeah, it's about as high as it's been in a minute. And then lastly the 15 day rate of change. Also the Russell 2000 versus the S& P, really what you love to see. So we've got rotation. You've got different areas of the market performing going into 26. I like them. I like small caps.
- [46:01]
A
Did you know, did you know the average car sold in the United States this year broke $50,000 for the first time ever new car? Is that nuts? That just seem that. I mean it snuck up on us.
- [46:16]
B
Yeah, we. Well the, the smaller models, they don't sell them anymore. Like there's no cars under 30,000. They just, they don't exist.
- [46:21]
A
Well, I wanted to go there in a second. I don't want to go there yet. But let me just share this. The average monthly car payment. So I don't. This is not a lease. This is like for people that finance their cars. The average monthly car payment in America is now $760.
- [46:40]
B
Yeah, that's a problem.
- [46:41]
A
You know how much money that is?
- [46:43]
B
Yeah, it's back breaking. It's crazy.
- [46:44]
A
I mean it's crazy. But that's the average, which means half or more. This is where I wanted to go with this. Obviously this is in response to people being willing to pay it because there's a such thing as just not getting a new car. So this is that thing where everyone, where you're like, oh, the economy's fine, the consumer's fine. I was just on the plane to wherever the, wherever the hell and the plane was full and people yell back at you and Ben, you guys are out of touch. You guys millionaires, blah blah, blah. No, dude, people in America are buying cars on average at $50,000. They're not forced to. So this is. So these prices are in response to this willingness of the consumer to pay that they might not be happy that they're paying it, but they're also not paying it at gunpoint. What are your thoughts?
- [47:41]
C
Oh.
- [47:43]
A
Michael's out of touch.
- [47:47]
B
Well, let me just say I'm very.
- [47:49]
A
I am right. I am right.
- [47:51]
B
I hate my Jeep. God, do I hate my Jeep. But I love the payment. It's 550amonth.
- [47:56]
A
Yeah, go, go get another one. Watch what happens.
- [48:00]
B
I don't know about that, man. Like what are people supposed to do? Not pay it?
- [48:04]
A
Used car, Lease a car.
- [48:08]
B
Are the prices that much different for a used car?
- [48:11]
A
Yeah, sure, of course. You kidding me? Buy the 5 year old Chevy Tahoe versus this year's Chevy Tahoe. Are you crazy?
- [48:18]
B
Yeah.
- [48:19]
A
Do you know what the average price paid for a car in early 2020, right before the pandemic hit was?
- [48:25]
B
I do. I read the article.
- [48:27]
A
Would you like to share it with the audience?
- [48:29]
B
Go ahead.
- [48:31]
A
38,000. So I can't do the math in my head, but that seems rapid to go from 38 to 50 that, that quickly. There's one more thing from here I thought was was really interesting. Oh, in the third quarter is a journal article. In the third quarter, Americans carried $1.66 trillion in auto loans, up 300 billion compared with five years earlier. And they're not exactly doing that at the lowest interest rates in a generation. So again, this gets back to my comment. I know it people off and I know it's. I know it sucks and I know for people that are on a fixed budget it's very painful. But where do those prices come from? Not from outer space. This is what the market will bear. And the minute that's not true. The minute that's not true because new car sales fall off a cliff, you watch what happens to the prices.
- [49:29]
B
You're right. And if you think about like people are sharing charts about auto subprime or auto delinquency payments and the chart, the data's. The data. It's not great, but. And also if it were that bad, you wouldn't have ally which is the biggest Player in this space up 32% year to date and at multi year highs. If things were that dire, if people were really buckling and I know, yeah, they're pissed off, I, I'm pissed off, it's too much. But the businesses are okay.
- [49:59]
A
All right, you're up.
- [50:02]
B
All right, what time is it? All right, let's keep this real quick. I just thought this was notable. Mark Rowan, the grown up in the room in, in private asset land is in risk reduction mode. So the FT said Rowan's comments came in private meetings at a Goldman Sachs conference. According to the people who attended, Rowan is Apollo. That's right. He said, quote, we believe that prices are high, that rates, long rates are not likely to plummet and that we have enhanced geopolitical risk as a firm we are in risk reduction mode. We preach risk reduction. Our balance sheet is in risk reduction mode. And if you're allocating to opaque areas of the market, this is probably. On the one hand you don't love to hear this because it's like wait a minute, what's, what's wrong but good you want to.
- [50:48]
A
What is risk reduction mean in the context of private equity and private credit?
- [50:53]
B
Some of the lending that they are doing, they are taking a closer look. They're pulling back. They said specifically on Clos they're cutting their exposure in half. They are being careful about the loans that they are making. Now I wasn't at the conference so I can't get into more specifics. But what's interesting is if you look.
- [51:08]
A
So less, less lending, less allocating to certain types of loans.
- [51:12]
B
I would just say more, I'm putting.
- [51:15]
A
Words, more careful lending because can I say one thing? Like when somebody that manages public equities or public debt says that they're in risk reduction mode, there is a thing that they can do immediately to have that be manifested, which is to sell. That's not an option in the. Well, they could sell companies they own to another private equity firm. So maybe, but you can't just one day be like, all right, we're reducing risk, take down our exposure in the portfolio by 20%. That's not a thing. Okay. What you can do is stop throwing more money into certain types of investments. You can get more conservative in the types of things that you're funding, etc. So that's what this is really about.
- [51:59]
B
I think it's interesting that from Michael Sidgemore has a substack altcos mainstream and every week I read his, his post and he always updates the agm Index, as he calls it, and he has a chart of all of the giant sponsors, and he looks at their market cap and the market cap change and their aum, and they're all taking in money, say, for one company. And yet the market is, is. The market is skeptical. Also, as somebody who, you know, I respect risk, you. You love to see the, the hesitation. It's. It's healthy. Maybe not for shareholders, but in general, it's a good thing.
- [52:35]
A
Well, I think they need more exits, and they're starting to get them on the equity side. I think this is a really critical thing. The secondary funds that have launched that have enough capital to start taking primary sponsors out of, you know, 2022, 2021, 2020 vintage.
- [52:53]
B
I'm getting 17 emails a day from secondary funds.
- [52:57]
A
Right. But you need. It's a very vital thing that has to happen now is those funds have to raise capital, and many of them have, and they have to get active because the whole machinery breaks down. If just pulling somebody out at random. If KKR made an investment in a software company in 2018 and they're still sitting in it in 2028, that's problematic. It makes it hard to raise funds from your bread and butter institutional and family office clients if they still don't have liquidity from a series that was launched a decade ago. So you need that. So you need more exits starting to get them, at least on the equity side. And then the second thing that you obviously need is for the economy to hold up. And I think they'll get both next year. So. But. But I like to hear that at least one of these people is talking like Jamie Dimon. And it's. And it's Mark Rowan.
- [53:51]
B
So let's do it.
- [53:52]
A
I have.
- [53:53]
B
Yeah. Let's see the biggest surprises of 25. I'll go first. I, unfortunately, I was a bit basic here, so we probably have overlapping stuff. I hope you were creative.
- [54:01]
A
We do not. Because I had John check.
- [54:03]
B
Oh, wonderful. Okay.
- [54:04]
A
Yeah, I'm very. I'm very smart about that.
- [54:07]
B
My first surprise, I believe, was the divergence in gold and bitcoin. This was supposed to be the year of deregulation of crypto palooza, of Trump coin, of fart coin, of Melania coin. And the spread has got to be the biggest spread of the last 10 years. I would guess. Maybe not. I don't know. Gold is up 69% year to date, and bitcoin is down unreal.
- [54:32]
A
And that's not even the whole story. There was a moment this year where bitcoin was up 85% or something like that.
- [54:41]
B
I mean it was close. It wasn't quite that much. I'm think chart back on. This was. No, these were neck. No, these were neck and neck through the first half of the year. Like all of the spread happened in the fall.
- [54:54]
A
Silver made an all time record high today. A price it's never traded at. Platinum has been on fire. They're buying copper for some reason and obviously gold 4, 500. And that $5,000 number seems like it's going to be a magnet.
- [55:09]
B
I think.
- [55:10]
A
I feel like it's going to get sucked right up.
- [55:12]
B
I bought the silver breakout at 30 bucks. You mentioned your water sale. I think I bought silver at 30 and I probably. I probably sold it at 36.
- [55:21]
A
You like the Hunt brothers. You tried to corner silver but you yourself got cornered.
- [55:25]
B
My number six.
- [55:26]
A
Whoa, whoa, whoa, whoa.
- [55:27]
B
That was 1A, 1B. Next chart please. Gold miners 170%. Are you kidding me?
- [55:34]
A
These things never to Yan Van. Never.
- [55:37]
B
All right.
- [55:38]
A
Hey, if you're. If you're along that I would switch that out for. For actual precious metal. I. I would do the gold ETF and get out of the gold miners ETF right now.
- [55:47]
B
You don't give gold mining ETF advice.
- [55:49]
A
Next week, there will be no follow through in those stocks, I promise you. I don't care where the price goes.
- [55:53]
B
They've gone vertical. Dude, the chart is like hilarious. Did they?
- [55:56]
A
Good luck. I wish you luck. I wish you luck.
- [55:59]
B
What do you got?
- [56:01]
A
Biggest surprise for 2025. Netflix surprise bid swoops in when it looks like Paramount is going to run away with hbo, arguably the greatest creator of streaming content. And Netflix, which does not do acquisitions.
- [56:20]
B
Shocker came.
- [56:21]
A
Came over the top with a huge bid and it seems like a prepackaged deal that was already negotiated and everybody loved it on both sides. And they went to the White House. They got Trump's blessing. I won't this up for you guys. That's just a monumental moment and they may not end up with it. We don't know for sure because Paramount's fighting like hell. But right now my best guess is that they will end up with it.
- [56:48]
B
Yeah.
- [56:49]
A
And that. And now Netflix plus HBO $50 a month or whatever. So if you don't like your car payments, wait till you see your. Your Tony Soprano payments. Anyway, that's my biggest surprise of this year.
- [57:00]
B
Yeah, that's a good one. Okay, what's my next one? Oh, all right. So I feel like chart off for. Please let me just Set this up going into 2025, I feel like it was peak. Why the F do I own international stocks? Like, the volume got turned up to 11 trot on smashed.
- [57:20]
A
Amazing.
- [57:21]
B
Did not have this on my. In my parlay.
- [57:25]
A
Nobody did. And that's why it worked.
- [57:27]
B
Yeah. All right. Back here.
- [57:29]
A
Okay. My second big surprise was tariffs ended up being a fizzling narrative for the stock market by the third quarter. I'm not saying that they didn't matter, and I'm not saying that they weren't impactful on Main street, on, on, on companies, on small businesses. I understand that they had a big impact, but. But as a stock market driving force, even when Trump would send these random erratic tweets about new tariffs that nobody had ever heard about, the market just completely tuned it out. By Taco.
- [58:05]
B
Remember Taco?
- [58:07]
A
Right? What is that? Trump always caves. What's the o. Caves out. Chickens out. Trump Orchard. Trump always caves. Orphan Trump always chickens out. Um, the market just, it's not. The market didn't believe that there would be tariffs. The market said, you know what? We think that these companies can handle them and figure it out. And they did. I mean, you just look at the earnings growth this year. They did figure it out. They. We got through it, and it just stopped being a market narrative. And I think that was probably shocking at the time. I think it's the biggest. It's. I think it's tied with Netflix as the biggest surprise of the year for Mo for most market participants.
- [58:46]
B
Okay, my last one, I shout out to John for being so nimble here in the, in the, in the chat, being able to make this happen. I, I, I ruined this. I ruined this. I had him show it earlier. Charon. So I made him pop this on when Sam was talking about AI and the bubble. Like, it's kind. It's, it's just, it's remarkable how quickly this narrative has, has shifted. Like, all right, nobody's worried about the AI bubble anymore. Wonderful. Great.
- [59:12]
A
Came surprises that people stopped saying bubble so quickly. They'll be right back at it.
- [59:19]
B
Yeah, yeah, yeah. But like that. Show that back for a sec. Like, dude, that, that is straight up, straight down.
- [59:26]
A
That red line collapsing straight up, straight down. And that is the number of mentions in Bloomberg articles.
- [59:32]
B
Yeah, well, because the straight up happened. It. COD off, please. That coincided with the September announcement of Oracle when Oracle Stock was up 37% in a day, and every announcement was sending these stocks 13% higher. That was some bubble. And just give it a minute. And it reversed all of it.
- [59:49]
A
Yeah. I think we're going to get it back in January.
- [59:51]
B
So do I.
- [59:53]
A
All right, number three, Surprise. Robin Hood became the stock of the year, up 220% at its high. Up 250% on the year. Not from its all time low, just on the year. 250% at its peak. The XLF for context, did. Plus 13.7%. So this was the most incredible stock of the year. It was the number one performing S&P 500 name as of today and probably will finish that way. It actually joined the s and P500 this September. Ironically, it replaced Caesars. So we swapped out one casino for another. And I don't think there's any doubt, I don't think anyone can doubt that, that Robinhood was like the defining financial stock of the year. It just, it's, it's Trumpism. It's anything goes. It's the regulators aren't so worried about this stuff anymore. No one's going to bust your balls. You want to launch something, you want to do crypto, you want to buy somebody, do what you want to do. And no stock personifies that deregulatory mentality better than Robinhood. And my hat is off to them. It's not just about the stock price, the fundamentals. There have been incredible report after report. They know what they're doing, they're taking care of business. And if you're a shareholder in that company, you are having a better year than almost any other stock than any other stock in the S and P. So I thought that was really cool. All right, those are the big. Did you have one more or we got them all.
- [61:30]
B
No, that's it. Good stuff.
- [61:32]
A
All right. All right, guys, hit us in the chat with some of your biggest surprises. If we missed any big ones or any obvious ones and we will definitely get to those. We'll, we'll read, we'll read those Post show. All right, what do we have? What do we have left?
- [61:46]
B
We're making the case for Japanese stocks. What's going on?
- [61:49]
A
Yeah, so in light of the fact that, that this was a great year for international stocks, I want to start off next year correctly. By top ticking though, I want to, I think this is going to keep going. This is the best, I think it's the best country market chart there is. The Japanese stock market, just incredible. I think it went up 26% this year. The Nikkei 225. So the Nikkei 225 is the Dow Jones of Japan. It's 225. Stocks, not 30. But that's the way to think about that. It's very heavily biased toward big industrial companies and banks.
- [62:30]
B
I also think it might be price weighted.
- [62:32]
A
It is price weighted like the Dow. That's correct. Very good, Michael.
- [62:35]
B
Thank you.
- [62:36]
A
The topics is more like the s and P500. It's thousands of stocks, like 2,000 stocks. But it's got the tech, it's got the, you know, the, the everything else. And it's a little bit more inward looking. It's got the consumer plays in Japan in there. Whereas the Nikkei 225 is like big global exporters are more dominant. So that's the way to think about those two. The Nikkei is up 26% this year. They actually had two interest rate hikes, 50 basis points in January and last week another 25 basis points and the 10 year yield in Japan went from 1% to 2%. And that's, I mean it's radical for, in Japanese terms anyway, the Nikkei crushed the s and P500. The Journal talks about the global tech supply chain AI, optimism, corporate governance reforms which you and I talked about on the show where they told all the companies in the stock market, get your shit together. Too many of you are selling below book market a book value. Either make money for shareholders or, or get off the exchange. All that shit worked. And now they have a new prime minister who's doing a massive 3 1/2% of GDP fiscal stimulus plan. And that's why yields are going higher for Japanese bonds. And I think the stock market's reacting positively to that too. They're spending a lot of money internally within the, within the country. And this, here's the, here's the punchline. It's still cheap. It's 16 times earnings. So despite the fact that it's up so much, this is still a way on a valuation basis to diversify away from the S and p, which is 2122. Let's do some charts. Here's the Nikkei 225, five year performance. This is a home run. This is a home run. This is a double 50,000 412 as of today. On the, on the Nikkei. Let's do the topics. Not as pronounced, but still pretty Damn good from 2000 to 3400 in the last 5 years. I got Wisdom Tree Hedged Japan. This is the DXJ. This is smaller than I thought. I think it's 5 billion in assets. Are you surprised by that?
- [64:56]
B
Yes.
- [64:57]
A
I thought it was bigger than you.
- [64:58]
B
Yes, it probably was. At one point.
- [65:00]
A
All right, this looks phenomenal. This is basically buying Japan but hedging out the currency fluctuations between the, the yen and owning it in dollar terms. Here, let me, let me do this. These are the big. These are, what are these?
- [65:16]
B
Oh, fanuc. I'm a huge fanuc guy.
- [65:20]
A
Oh, these are the top 10 holdings. No, I don't know what this is great. These are big, big, big time Japanese stocks here. Softbank. I don't know.
- [65:32]
B
Big time Japanese stocks.
- [65:34]
A
Couple more things on this. Berkshire Hathaway once again was five years early to this trade. They made their first purchases of Japanese stocks in 2019. They bought 5% stakes in each of the biggest five trading houses, which is a Japanese business. They're like basically merchants for global trade.
- [65:56]
B
Why do we call them trading houses? Is that because the newspaper calls.
- [65:59]
A
That's what they call them. But they're basically import export merchants. And what. It doesn't matter. Between 21 and 23, Berkshire increased their stakes. They went from 5% to 9% in each of these giant five companies. And then from 24 to 25, they were buying even more. They got management approval from these companies to go above 10% limits in Mitsubishi and Mitsui. So Berkshire Hathaway is over 10% in those two. It's 9% in Sumatomo, Marabeni and 8 and a half percent in the TOU. And I want to show you some more big time Japanese stocks.
- [66:40]
B
Riveting stuff, Josh.
- [66:42]
A
All right, Sony. No, not so great. Toyota. This one looks awesome. Big breakout this year. Here's Mitsubishi ufj, which is the whole conglomerate, not just the, the engines. Here's Mizuho Financial Group, friend of the show. Dan Dolev is an analyst for Myth for them. Here's Nomura.
- [67:05]
B
Wow.
- [67:05]
A
Another Japanese investment bank looks amazing. Here is Sumitomo, another giant financial group. Huge move in the stock, basically 12 to 20. And here's Honda. Not so great. Toyota looks better.
- [67:20]
B
All right, Jason. Jc. JC would be proud that you're showing.
- [67:23]
A
A Japanese pharma here. Takeda. This looks like it's about to break out. So that's the story with Japan. And again, I think, yes, they're up a lot over five years. No, they're not up that much over 30 years. And quite frankly, still a much cheaper market than the US With a lot of fundamental drivers. That's my make the case. Are you convinced?
- [67:44]
B
I like it.
- [67:45]
A
I think Japanese.
- [67:46]
B
With me, I turn in Japanese. I really think so. All right, mystery chart time. Okay, so these are two industry groups Within a sector. And we spoke about them today in great detail. And one is obviously doing a lot better than the other.
- [68:05]
A
This is semiconductors versus software.
- [68:08]
B
You're on the right track, but wrong sector.
- [68:11]
A
You. All right. Capital markets versus banks.
- [68:15]
B
All right, very good. Reveal. Not quite, but basically reveal. Banks versus alternative asset managers.
- [68:24]
A
Look at that spread. All right, so I didn't get it.
- [68:27]
B
I mean, you were in the right sector. It's close enough.
- [68:29]
A
Look at this hand graded. You got to get it. All right, let me take a look at this, dude.
- [68:34]
B
31% for the banks and 9% for their counterparts. That's.
- [68:40]
A
I thought this was the. I thought this was the year of alts. What the hell happened? I thought this was it. So halfway through the year, it looked that way.
- [68:47]
B
The flows were good. Like, the flows weren't bad, but investors are asking questions.
- [68:52]
A
The flows were good. The headline risk was bad. That's the way I would phrase that.
- [68:57]
B
So this. This is. This is either this goes one of two directions. It either dissipates and these stocks catch up, or it gets worse and they go way lower.
- [69:07]
A
And we're gonna find out how much the banks are on the hook for with all this money they're helping finance all these private equity transactions.
- [69:17]
B
The. The fundamentals of these loans that they're making. Like, the. The loans are fine. At least the ones. The. The marks that they're giving them. Like the defaults. Yeah, no, but they have to report that stuff. And, like, so far, there's nothing there. So we'll say.
- [69:28]
A
I agree. The market thinks there's a shoe about the drop, so. And I. I wouldn't know. I'll tell you when it happens. I wouldn't be the one that knows. All right, guys, thank you so much for watching. Thank you for listening. For everybody who joined us on the live once again, we appreciate you. Don't forget, tomorrow is Wednesday. All new edition of Animal Spirits with Michael and Ben. We'll do ask the compound, and we will not have compound and friends this week. Christmas.
- [69:55]
B
Yeah. Merry Christmas, everybody.
- [69:57]
A
So merry. So. Oh, we're not going to have an ask the compound either either, because Christmas is Thursday. So forget everything I just said. All right, guys, thank you so much for watching. Thank you for listening. Merry Christmas. We appreciate you. We'll talk to you soon.
- [70:19]
B
Sa.