Podcast Summary: The Compound and Friends – "Things People Say in a Bull Market"
Episode Information:
- Title: Things People Say in a Bull Market
- Host/Author: The Compound
- Description: Join Downtown Josh Brown, Michael Batnick, and a rotation of their friends every Tuesday and Friday for expert insight and hot takes on the latest in business and investing.
- Release Date: August 12, 2025
1. Introduction and Current Market Overview
The episode opens with hosts Josh Brown and Michael Batnik delving straight into discussing the prevailing sentiments and narratives circulating during the current bull market. With the S&P 500 approaching a new record high of 6400 and various sectors trading higher—some previously held back awaiting rate cuts—the conversation sets the stage for a comprehensive analysis of market dynamics.
Notable Quote:
- Josh Brown [00:00]: “Tonight we're gonna get right down to business... we'll talk about why that's the case right now.”
2. Earnings Season Performance
A significant portion of the discussion centers around the performance of the earnings season. With 90% of S&P 500 companies having reported, the blended earnings showcased a robust 10.5% year-over-year growth, surpassing initial estimates by a staggering 770 basis points. An impressive 81.2% of companies beat expectations, outperforming the five-year average of 77%.
Key Highlights:
- Sector Performance: Communication, Services, Technology, and Financials led the growth, while Energy, Materials, and Consumer Staples lagged.
- Comparison to Past Seasons: Matt from Exhibit A highlighted that this beat rate is the largest since 2013, excluding the anomalous COVID-19 period.
Notable Quote:
- Josh Brown [05:11]: “81.2% beat rate. Which is better than the five year average of 77%.”
3. Inflation Data and Consumer Price Index (CPI) Insights
The hosts analyze the latest CPI data, which showed a 2.7% annual increase for July, slightly below the consensus estimate of 2.8%. Monthly inflation rose by 0.2%, with goods and services inflation exhibiting distinct trends.
Insights:
- Goods Inflation: Concentrated in tariff-affected products such as household furnishings, apparel, and vehicles.
- Services Inflation: Stalling, with no significant increase outside of rent, comprising 60% of CPI.
Visual Aid:
- A chart displaying core CPI trends over ten years, highlighting fluctuations and potential "head fakes."
Notable Quotes:
- Cali Cox [05:54]: “Services inflation is inching higher again.”
- Josh Brown [14:16]: “Core goods on the right looks concerning. I don't, I don't think you have to predict like, oh, that's tariffs.”
4. Bear Cases and Market Concerns
Despite the optimistic earnings reports, the hosts explore potential bear cases that could threaten the bullish trajectory. The primary concern revolves around a possible bubble in hyperscaler capital expenditure (capex) spending. Additionally, unforeseen risks lurking on the horizon remain a wildcard.
Discussion Points:
- Bubble in Hyperscaler Capex: The risk of overinvestment in cloud and AI infrastructure without sustainable returns.
- Unexpected Risks: Emphasizing that market downturns often stem from unforeseen events rather than predictable factors like inflation or tariffs.
Notable Quote:
- Michael Batnik [16:00]: “Real risk is, it's what you never see coming.”
5. Investor Sentiments and Fund Flows
Analyzing data from Schwab Wealth Management, the hosts discuss the shifting investor sentiments, particularly the significant outflow from small-cap stocks. Over $80 billion has been exited from the Russell 2000 this year, marking the largest withdrawal on record.
Key Points:
- Investor Demographics: Younger investors gravitating towards high-growth sectors like crypto and meme stocks, while older investors remain cautious.
- Insider Buying Trends: A decline in insider buying among S&P 500 companies, indicating potential lack of confidence at the executive level.
Notable Quotes:
- Michael Batnik [18:59]: “There's a K-shaped investor base as well.”
- Josh Brown [40:21]: “Corporate executives are dumping stock like it's radioactive waste when insiders won't even touch their stocks at current prices.”
6. Dominance of Mega-Caps vs. Small Caps
The conversation delves into the growing dominance of mega-cap companies, often referred to as the "Mag 7," and their expansive acquisitions across various sectors. This aggressive expansion blurs traditional industry boundaries, positioning these giants as versatile conglomerates.
Discussion Points:
- Acquisition Strategy: The Mag 7 have collectively made 846 acquisitions, spanning industries from media to autonomous vehicles.
- Impact on Small Caps: As mega-caps absorb smaller companies and diversify their portfolios, small-cap stocks struggle to compete, often leading to their underperformance.
Notable Quotes:
- Josh Brown [32:22]: “These companies don't respect horizontal boundaries.”
- Michael Batnik [34:46]: “They do more with the same.”
7. Insider Buying Trends
The hosts examine insider buying trends, highlighting a decline in purchases by executives within S&P 500 companies. This downturn is portrayed as an indicator of diminishing confidence among corporate leaders regarding current market valuations.
Key Insights:
- Low Insider Buying: Only 15.1% of S&P 500 companies saw insider buying last month, the lowest rate since 2018.
- Implications: Executives may perceive current stock prices as overvalued, choosing to liquidate holdings rather than invest further.
Notable Quote:
- Josh Brown [40:08]: “Corporate executives are dumping stock like it's radioactive waste when insiders won't even touch their stocks at current prices.”
8. AI Hedge Funds and Market Speculation
A critical segment discusses the surge in AI-focused hedge funds, likening the phenomenon to past speculative bubbles like the dot-com era. The hosts express skepticism about the sustainability of these funds, noting the risks associated with concentrated bets on AI-driven transformations.
Discussion Points:
- Proliferation of AI Funds: New hedge funds are rapidly raising capital to invest in AI-related stocks, often led by young, tech-savvy managers.
- Risks: Overreliance on AI predictions without considering broader market cycles could lead to significant losses if the AI trend faces setbacks.
Notable Quotes:
- Josh Brown [54:07]: “We're definitely going to do great on investing. Can you even say that?”
- Michael Batnik [55:50]: “This is really hard to predict.”
9. Efficiency and Revenue per Employee
Chart kid Matt's analysis reveals that S&P 500 companies have significantly improved their revenue per employee over the past three decades. In 1991, it took 2.46 employees to generate a million dollars in revenue, compared to just 1.55 today, highlighting unprecedented efficiency gains.
Sector Breakdown:
- Healthcare: Exhibited the most substantial increase in revenue per employee, driven by enhanced spending and expansion.
- Technology: Although a significant contributor to efficiency, its high employee costs balance out some gains.
Notable Quote:
- Michael Batnik [47:02]: “It's making a million dollars again. Real less people than ever with almost one full less employee than they were.”
10. Mystery Chart: Paramount Changes
In a segment involving a mystery chart, Josh Brown reveals insights into Paramount's strategic overhaul. Formerly Viacom, the merger with Skydance and acquisition of UFC signify a pivot towards catering to younger demographics, particularly young males interested in action and entertainment.
Key Points:
- Strategic Acquisitions: Paramount's $7 billion acquisition of UFC solidifies its position in the entertainment sector.
- Market Positioning: By focusing on culturally resonant content, Paramount aims to capture a loyal and engaged audience base.
Notable Quotes:
- Josh Brown [63:03]: “This is Netflix for young men.”
- Michael Batnik [64:21]: “Love them.”
11. Rate-Sensitive Stocks and Make the Case
Towards the episode's conclusion, the hosts advocate for investing in rate-sensitive stocks, such as small caps and homebuilders, anticipating potential rate cuts. They argue that these sectors are poised for growth should the Federal Reserve reduce interest rates, which the market is already pricing in.
Discussion Points:
- Rocket Companies: An example of a rate-sensitive stock showing significant gains, reinforcing the potential upside in this sector.
- Contrarian Signals: Despite negative fund flows from small caps, the hosts suggest that such movements may present buying opportunities.
Notable Quotes:
- Michael Batnik [61:56]: “I think that they are a screaming buy if we are going to get rate cuts, which is what the market is pricing in.”
- Josh Brown [62:05]: “I would sell it for 30, but I would not sell it right now at 18.”
12. Closing Thoughts and Final Insights
In wrapping up, Josh and Michael reflect on the complexities of the current bull market, emphasizing the importance of discernment amidst widespread optimism. They caution against following herd mentality and highlight the need for strategic investments based on solid fundamentals rather than fleeting trends.
Final Remarks:
- Sentiment Indicators: With indicators like the NASDAQ 100 showing signs of narrowed leadership, the hosts suggest that a market correction may be imminent.
- Investor Advice: Focus on defensive sectors and maintain a balanced portfolio to navigate potential downturns effectively.
Notable Quotes:
- Michael Batnik [57:00]: “We could use a slap on the wrist. People are feeling themselves.”
- Josh Brown [61:22]: “There's nothing on earth that Pete, you, you will get if you start conversation. Hi Michael, it's Josh Brown.”
Conclusion:
In this episode of "The Compound and Friends," Josh Brown and Michael Batnik provide a nuanced analysis of the ongoing bull market, dissecting earnings data, inflation trends, and investor behaviors. They balance optimism with caution, urging listeners to remain vigilant and strategic in their investment approaches. The discussion underscores the importance of understanding underlying market mechanics and avoiding the pitfalls of herd mentality, ensuring that investors are well-equipped to navigate both the highs and potential lows of the market landscape.