Podcast Summary: The Compound and Friends Episode: Trump Is Winning His Trade War, Michael Semblist on 20 Years Running Research at JPMorgan, Earnings Reactions Galore
Release Date: July 29, 2025
Host: Downtown Josh Brown & Michael Batnick
Guest: Michael Semblist, Chairman of Market and Investment Strategy at JPMorgan Asset and Wealth Management

1. Introduction and Special Guest: Michael Semblist

In this landmark 20th-anniversary episode of "Eye on the Market," host Downtown Josh Brown and co-host Michael Batnick welcome Michael Semblist, a revered figure in financial research. Celebrating over three decades at JPMorgan, Michael shares invaluable insights from his extensive work shaping market strategies for a diverse clientele, including individual investors, wealth managers, and institutional clients.

2. Reflecting on "Eye on the Market" – A Legacy of Insight

Michael Semblist reminisces about the evolution of the "Eye on the Market" publication, highlighting its transformation from a semiannual report to a weekly essential resource, especially during the financial crisis of 2008. He emphasizes the publication's role in providing candid, data-driven analysis amidst turbulent times.

Notable Quote:
[05:40] Josh Brown: "Mary Callahan Erdos comes to you and says... you're doing a lot of research... So I want to go back to the beginning."

3. Significant Insights from Michael's Research

a. Meredith Whitney and Municipal Bonds

Michael discusses Meredith Whitney's dire predictions about the municipal bond market post-financial crisis, explaining how his own research debunked her alarming forecasts. By conducting comprehensive data analysis across 350 Metropolitan Statistical Areas (MSAs), Michael demonstrated that except for Detroit, other large municipal issuers remained stable, thereby reassuring investors.

Notable Quote:
[19:41] Michael Batnick: "Detroit was so different in ways people may never be able to appreciate... default rate in the municipal market, it was 0.1%."

b. Geopolitical Risks and Market Resilience

Exploring the relationship between geopolitical tensions and market performance, Michael argues that historical data shows minimal long-term impact on financial markets, with notable exceptions like the 1973 Arab-Israeli war. He contrasts this with current concerns, suggesting that while regions like the Middle East hold some volatility, major conflicts involving key players like China and Taiwan could pose significant risks.

Notable Quote:
[26:34] Michael Batnick: "There's just not a lot of evidence that geopolitics drives markets for more than a few weeks."

c. Yield Curve Inversion and Recession Predictions

Addressing the traditional belief that an inverted yield curve reliably predicts recessions, Michael presents his analysis from 2022. He explains that unlike past instances where rising rates led to corporate financial stress and recessions, the unique circumstances of financial repression and corporate sector surpluses this time disrupted the typical transmission mechanisms.

Notable Quote:
[31:58] Michael Batnick: "The transmission mechanism from rising policy rates to recession wasn't there."

d. Historical Market Patterns and Predictive Indicators

Michael shares his favorite historical analysis, demonstrating that stock markets often bottom before traditional economic indicators. Using examples from the Great Depression and the 2008 financial crisis, he illustrates how bank equity indexes consistently signal market bottoms well before other economic data catches up.

Notable Quote:
[38:57] Michael Semblist: "They said the capital shortfall was 3 billion... when they published these charts, we said... there are differences in how banks run themselves."

4. Trump's Trade War Progress and Market Implications

a. Recent Tariff Negotiations with Japan and the EU

The discussion shifts to President Trump's ongoing trade negotiations, highlighting recent deals with Japan and the European Union. Michael assesses the market’s positive reaction to reduced auto tariffs and substantial investment commitments from Japan. However, he also underscores the mixed reactions from European leaders, revealing underlying tensions despite the publicized agreements.

Notable Quote:
[82:04] Josh Brown: "So just on the surface, based on what I'm telling you, doesn't it sort of sound like Trump is winning this thing given all-time highs in the market and basically getting huge investment commitments from these countries?"

b. European Leaders' Skepticism

Despite the apparent market optimism, European leaders express reservations about the trade deals. Comments from officials like Sweden's Trade Minister and the German Chancellor reflect concerns over the long-term impact and the authenticity of investment commitments, indicating a complex geopolitical landscape.

Notable Quote:
[86:21] Josh Brown: "Benjamin Dussa, who is the trade minister from Sweden, said... the French prime minister mourned it as a... somber day."

5. Current Earnings Season Highlights

a. Major Stock Performances

The hosts delve into the recent earnings reports of major companies:

• UPS: Continues a five-year downward trend, missing guidance with "no guidance due to macro uncertainty."
• PayPal: Despite strong revenue beats, the stock faces severe sell-offs, reflecting skepticism about sustainable growth.
• Starbucks: Misses earnings but announces the controversial "Green Apron Service," aiming to enhance customer interaction.
• Chipotle: Experiences a significant decline, mirroring industry-wide struggles.

Notable Quote:
[73:27] Josh Brown: "Do you want me to explain what this is?"

b. Stock Market Reactions to Earnings

Michael Semblist highlights how the market disproportionately rewards companies that beat earnings estimates while harshly penalizing misses. This trend underscores the precarious nature of current market optimism, heavily reliant on a select few tech giants driving the rally.

Notable Quote:
[74:59] Michael Semblist: "They have a persistent pattern of lower highs. Not what you want to see."

6. Semiconductors and AI-Driven Market Rally

a. Dominance of AI in Market Growth

The conversation pivots to the critical role of artificial intelligence (AI) and semiconductor companies in sustaining the current bull market. The hosts emphasize that without the continued investment and innovation from giants like Nvidia and Microsoft, the market’s upward trajectory would falter.

Notable Quote:
[90:05] Josh Brown: "The only thing that matters is AI."

b. Market Capitalization Shifts

Michael Batnick presents data showing a significant shift in market capitalization from traditional leaders like Apple to AI-centric firms, illustrating the market’s realignment towards technology-driven growth.

Notable Quote:
[91:09] Josh Brown: "Do we need Apple in a bull market? No. So long as we have NVIDIA and Microsoft."

7. Leadership Lessons from the Financial Crisis

a. Comparing JPMorgan and Lehman Brothers

Michael Semblist shares lessons on leadership and risk management by contrasting JPMorgan's cautious approach during the 2008 crisis with Lehman Brothers' excessive leverage. He credits JPMorgan's resilience to effective capital management and strategic foresight, which ultimately saved it from collapse.

Notable Quote:
[57:43] Michael Batnick: "We were gradually pulling our horns heading into the financial crisis when we saw this."

b. Importance of Due Diligence

Recounting the due diligence process during the Madoff scandal, Michael emphasizes the necessity of thorough research and skepticism, reinforcing the importance of leadership vigilance in safeguarding institutional integrity.

Notable Quote:
[64:42] Josh Brown: "I can't help but wonder that as every academic and critic of the White House lights their hair on fire over the effective tariff rate, America is taking some steps to rebalance our economy."

8. Fed Meeting and Monetary Policy Expectations

a. Anticipated Fed Decisions

Looking ahead to the Federal Reserve's upcoming meeting, the hosts discuss current rate trends and market expectations. With the effective federal funds rate hovering just below 5%, they anticipate that the Fed is unlikely to cut rates imminently, instead maintaining a tight monetary stance to combat inflation.

Notable Quote:
[127:19] Michael Semblist: "Guys, this is a big L for me. I mean that, my God."

b. Market Implications of Fed Actions

Michael and Josh debate potential market reactions to Fed announcements, considering scenarios where dovish signals could either stabilize or destabilize the market further. They caution listeners to remain observant but not to make impulsive investment decisions based on speculative outcomes.

Notable Quote:
[129:35] Michael Semblist: "I hope we look back on this and say we were all making a big deal out of nothing."

9. Concluding Thoughts and Key Takeaways

As the episode wraps up, the hosts summarize key insights:

• Market Dependence on AI and Semiconductors: The sustainability of the current bull market is heavily tied to the performance and innovation within the AI and semiconductor sectors.
• Leadership and Risk Management: Effective leadership and prudent risk management are critical in navigating financial crises and ensuring institutional resilience.
• Geopolitical and Trade Dynamics: Trump's trade strategies have had mixed reactions, with significant investment commitments as a sign of potential market confidence, yet underlying geopolitical tensions remain a concern.
• Earnings Season Vigilance: Investors should remain cautious, recognizing that current market rallies are supported by a narrow group of high-performing stocks, and be prepared for potential volatility based on upcoming earnings reports.

Final Notable Quote:
[124:28] Josh Brown: "Stock market Americans are holding up the entire thing right now."

Access the 20th Anniversary Compilation:
For those interested in delving deeper into Michael Semblist's comprehensive 20th-anniversary compilation of "Eye on the Market," the compilation is available as a PDF. It offers a rich collection of analyses, charts, and historical insights that have guided investors through various market cycles.

Follow Michael Semblist:
Stay updated with the latest "Eye on the Market" pieces by following Michael Semblist on LinkedIn.

This summary encapsulates the key discussions, insights, and notable moments from the episode, providing listeners and readers with a comprehensive overview of the topics covered.