The Compound and Friends - Rest in Peace, CFA

Episode Date: May 6, 2025

On this TCAF Tuesday, Join Michael Batnick (Managing Partner, Ritholtz Wealth Management) and guest co-host Callie Cox (Chief Market Strategist, Ritholtz Wealth Management) for another episode of What Are Your Thoughts and see what they have to say about the biggest topics in investing and finance! This episode is sponsored by Grayscale. Learn more at: https://www.grayscale.com/   Sign up for ⁠The Compound Newsletter⁠ and never miss out! Instagram: ⁠https://instagram.com/thecompoundnews⁠ Twitter: ⁠https://twitter.com/thecompoundnews⁠ LinkedIn: ⁠https://www.linkedin.com/company/the-compound-media/⁠ TikTok: ⁠https://www.tiktok.com/@thecompoundnews⁠ Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of ⁠Ritholtz Wealth Management⁠, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here ⁠https://ritholtzwealth.com/advertising-disclaimers⁠. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: ⁠https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their 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. Hello everybody. It is Tuesday, 5 p.m. on the East Coast. My name is Michael Batnik. I'm joined by the wonderful, incredibly talented Callie Cox Callie.

Thank you for joining me. What's up, what's up? Big shoes to fill. I'm feeling good. I was at the Knicks game last night and I thought, you know, maybe we'd sneak one game in but I don't think we got the first one. Feeling good. Feeling good. Callie. How are you feeling? Yeah. Y'all, y'all won, right?

We did win. Yes. We won the game. We won the ball game. Um, all right. So Callie is here today. Josh is down in Miami. I'm feeling a little emotional about this. Josh is down there. He's picking up Tara from her freshman year of college. When I started working with Josh in 2012 math, I guess she was like five or six. And now my baby is the same age as she was when I started with them. It's the time. It's moving too fast. Cut the feed. We're going to cry.

Speaking of time, let's get the show started. We do have a new sponsor today. Today's show, today's episode is sponsored by Grayscale. Curious about investing in crypto? I'm not sure where to start. Start with Grayscale. Grayscale is the world's largest crypto native asset manager and has been in crypto since 2013. That is a long time when you consider how early we still are in crypto adoption. Grayscale also offers the widest selection of crypto investment products in the US. Over 30 different funds for investors to choose from. That's plenty of choice for both first time crypto investors

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Investing involves risk, including loss of principal. For more information, visit grayscale.com. All right, Callie, we have a lot to get to today. We're going to start with earnings. How have you felt? How do you feel overall about Q1 earnings season? I'll give the caveat that it's a very weird time because what companies did in the first 90 days of the year doesn't really matter in the new world. But nevertheless, it's helpful to hear what they're saying, what they're guiding for the future. So what do you think? Yeah, I think you summed it up there.

And I would say that forever earnings season, by the way, the numbers are important, but the guidance is even more important because the stock market looks 10 steps ahead. It doesn't look behind. It never turns back. Right. So, you know, Michael, I've been encouraged, but I feel like I have to caveat everything because I'm an analyst and everything has context. I'm encouraged, but I'm a little, I'm also a little shaky at the same time over the, the lack of expectation

change that we've seen. And what I mean is earnings have come in really well for the first quarter, at least for S&P 500 companies, large cap companies, small caps, different story. We're talking about the bigger companies here, but earnings have grown like 12.5% year over year in Q1. And that makes me feel good. It shows me that companies are in a strong place. They can handle a lot of some really big blows here, but expectations for the rest of the year Q2, Q3, Q4, still quite high. John, can you throw on the four square? Sorry, I'm going to skip ahead of you for a second. I'll just talk about it later. Yes, that one. So if you look at this, this is EPS estimates for each quarter of the year and Q1, obviously a lot of earnings reports have rolled in. That's probably pretty close to the actual growth

that we've seen. 13% is pretty darn good. And we're seeing a lot of sectors participate in that, but Q2, Q3, Q4, coming down makes a lot of sense. We've learned a lot in the past month or so, but estimates are still really high. Cause you have to remember Michael, in a recession earnings tend to drop.

They've dropped an average of 20%. And I don't think talking about a recession is out of the question for this year, even later this year. These numbers look still too optimistic to me, no? Yeah. Yeah. That's totally what I'm saying. And if you think about the recipe for stock market gains, it's expectations and reality. Right now we have reality that might be getting worse and we still have high expectations. That's the opposite of what you want, which is low expectations and pretty good slash good reality.

What we just saw, that's not super unusual to have the current quarter being revised higher and future quarters being revised lower. The yard down, he's got that squiggly chart, right? That's probably too complicated, but that always shows like the longer you go into the calendar year, you tend to see estimates come down, right? Yep. Yep. That's exactly it. Yeah. Wall Street is just way too optimistic. We're a fun bunch. All right. So one of the themes that Josh and I have been talking about, and our friend Sam Rowe has been covering this, was this idea that all sorts of companies are going to yank guidance. Like we're just not going to give you anything because there's way too much uncertainty. Don't hold us to this. And

that's not really what we're seeing, at least so far. So David Costin from Goldman said, so far this reporting season, a slightly lower proportion of companies are offering EPS guidance than average. Try it on please, John. It's really not a noticeable drop off. Nothing like 2020, of course. But here's the interesting part. This is sort of, that's vanilla. Here's the interesting part.

According to his count, 57% of companies addressing their previously issued guidance made no change. So that's the weird part. John, next chart please. So what you typically see is either a guide up or a guide down for next quarter. And what we're looking at is in the first quarter, 57% are affirming their previous guidance. And I wonder, is this why, trot off please, is this why, or one of the reasons why the market is looking past the potential turbulence on the horizon? So no, and I actually have a bone to pick with this data.

So a lot of companies have been coming out and they haven't been withdrawing guidance, they haven't been moving it, but they've been splitting it. They've been doing the bi-modal thing. This is our guidance. If a recession happens, this is our guidance. If no recession happens, tariffs, ex-tariffs, tariffs United literally did bi-modal guidance. That's what they said. And I don't know how it's counted in this data.

I went on, I went on the terminal actually to look at this because, uh, Bloomberg had a really good breakdown between bimodal guidance and withdrawn guidance. And they actually corrected the data and pushed all of the bimodal guidance into neutral. So they said, well, the companies just reaffirmed it, right? And that's not exactly the case. So I don't know if David's getting the same data as me, but I don't know if this data includes all the companies that are like doing the funny business thing and saying, eh, we're not really going to answer. Things could be okay if certain things happen. And that doesn't make me feel good. If the company's declining to answer,

then that's a bad thing. That's them skirting something for a reason. So I was about to ask a question, but let me answer the question that I didn't ask. So I was about to ask a question, but let me answer the question that I didn't ask. How are we getting 12.5% earnings growth out of the S&P 500? That sounds remarkable. And it's really not a difficult puzzle to solve. If you look to the left, communication services and technology are absolutely kicking butt cheeks. If you listen to Google and Amazon and Meta, Microsoft, or you look at their reports, they've been really solid. So nothing new there.

No, not at all. And tech has been kicking butt for years. So am I surprised that that's happening in Q1? No, not at all. But with the AI story, I think it's a big question, especially because tech is more exposed to international revenue sources than everybody else. Tech is more exposed to overseas costs than anybody else. How does that affect the AI story that's been driving these margins? I don't know, but I'm not sure that we

can continue this 40% plus growth in such a questionable environment. We mentioned a few minutes ago that analysts tend to be over optimists. I think we're seeing that right now. Let's skip the one from Taurus and let's go to the one from Marlin Capital. We're looking at bottom- ups consensus EPS revisions. Yeah, revisions are coming down for 2025, but if you compare that to previous down years where analysts were too rosy, 19, 20, 23, 2020, 09 and 08, this is nothing.

They're taking it down a little bit and we've got a long way to go. We have, you know, who knows what tower's in the being and all that sort of stuff. But what do you think? I have so many thoughts on it. And it starts with why the heck are we even doing estimates in the first place? And I'm gonna save that

because I know we're gonna get to that later in the show. But I almost think analysts are frozen in their tracks right now. There's still so much uncertainty and you'd think that some of that would work in estimates and it has, but for the most part, nobody can get a read on demand if prices are going to be passed on, what the prices will be. And Wall Street is responding by saying, okay, we're just going to put our pencils down. We're not going to change it. That doesn't make sense. I like that answer.

But it's not great if you're an investor, because that means that expectations are still too high. They're not cutting it down. So it's an easier bar to hurdle. All right. So relatively interesting nugget here. Companies that have reported positive earnings surprises for the first quarter of 2025 have seen an average price increase of 1.6% two days before through two days after the earnings

release. That's a little bit above, in fact, decently above the five-year average of 1%. On average, companies that beat are up 1% in the two days before to after earnings. Companies that are missing though are dropping 2.3% in the two days before and after, which is average. So no extra punishment for the losers or the disappointers, but extra reward for the winners. We'll take it. Yeah. I mean, hey, higher prices, we'll take it. And you have to remember too, the S&P is 10% from a high. So a lot of these stocks are beaten down and expectations at least from a company level are probably pretty low. Yeah. Let's get into the Mag-7. We got some good stuff on this.

This is from Yarian, Temer at Fidelity. He says, the Mag7 has been significantly derated over the past nine weeks. So if you're looking at this, that's the black line, that's the Mag7. With its trailing PE multiple falling from 43 times down to 27 times and its forward multiple falling from 40 to 25. He says earnings are flatlining right now, which would be a big risk if this cohort was trading at two times the broader market, which it was in the Nifty 50 and again in the Dicom bubble and in 1973. He said, but that's not the case.

At 25 times, the Mag-7 is only, I'm using only, he didn't, but the Mag-7 is only a third more expensive than the broad market. So you love to see this, right? Yeah. I mean, that's the argument for throwing P out the window and saying, we have these companies that are owning the market for a reason. I like to see it because I think valuations right now, and I want to caveat everything I say with valuations. I do not make decisions just on valuations. That's like buying a shirt and not looking at the designer. There are other things that go into this investing strategy and process that we do. But it does make me think that if we see a sell-off, then investors are more of a sell-off.

Investors might not hesitate to move back into big tech as more of a safe haven. I want to give a shout out to Daily Chartbook. I pulled a lot of the stuff from him, particularly these next few charts from Yardani, which I love. These are so good. So good. All right. The first one, the Mag-7's forward revenues and forward earnings share are both at a new record high of 11.8% and 22.6%. Is that what this is showing? I thought it was showing. Okay. I guess it is. Share. Okay. There we go. So share forward earnings, my bad. My brain got scrambled for a second. 22% of earnings and 12% of revenues. That is wild. So even as the prices are correcting, they're still swallowing the overall fundamental story.

Yep. And this is it, right? Is it just as simple where like trying to figure out like, how is the market, you know, only down 5% year to date and well, it's cause these stocks. Yeah. I mean, in some ways it is,

right? But here's where I hesitate, right? So these are seven companies. They are pretty diversified companies, but they're all very globally exposed. Tariffs are a question. It's a big question that we have to answer. And like we said a few minutes ago, there's a lot of uncertainty around that. I worry about the expectations here. There's no doubt that these are strong businesses, some of the strongest on the market, but what the right price is to pay for that, especially right now, I think is the big question. Sanyam Bhutani But doesn't the previous chart of the FFPE coming down, the expectations are being lowered. Doesn't that make you feel a little bit better?

But are they lowered enough? I don't know if anybody really knows that. So I think that's where there's a lot of guessing going on. And I think for me, as somebody who puts on the risk manager cap and wants to have a smooth ride through every environment up and down, it makes you a little nervous because you know if expectations or if reality does come down really fast, then tech stocks are probably going to get hit the hardest. I should point out that the 493 are actually outperforming the Mag-7 quite significantly

year to date. All right, one more chart from your daddy. Because the Mag-7 has been crouched, right? Yeah, one more chart from your dynamic. Because the MAX 7 has been crushed, right? Yeah. One more chart. Finally, also at a record high is the collective 26.2% fell or profit margin of the MAX 7 at the end of April. It's more than twice the 11.9% fell or profit margin of the S&P 493. This really is just an incredible chart to stay on.

Wow. Okay. Wow. Okay. Um, lastly, before I turn it back over to you, uh, here's a chart, weekly announced buybacks. So maybe, um, companies are taking advantage of inserting cases to press stock prices, obviously not in all cases, and are putting some corporate balance sheet money back to work. It should make you feel good, right? Companies are buying.

Makes me feel good. They see this as a buying opportunity. Yeah. Can't argue with that. All right. Let's talk about the feelings. Let's talk about the vibes. So the vibes and I stole this from somebody. I did not say the vibes are whack on my own, but the vibes are whack right now. John, can you throw that? Who do you steal that from? Schaefer's Investment Research. Okay. Yeah. They tweeted it. They, uh, I tweeted this chart that you're about to see and they tweeted back at me and said, the vibes are whack. And I was like, that's great. They are whack. We got to talk about this. So we're going back to the vibe session,

right? We're in a vibe session again. People are really worried about the future and you can see these worries on this chart, the yellow future expectations are down. I think they're down to like a 14 or 15 year low now, Michael. And they're around levels that you typically see in recession when people are really beaten down, there are reasons for them to feel really awful about the future. You know, it all kind of makes sense.

The vibes are bad. But if you ask people about their present situation, that's what the conference board does. That's a survey that you're looking at right now. They say, my finances are fine. I feel pretty good with where I'm at. It's just where I'm going is kind of a problem and I'm gritting my teeth through it, which is a confusing phase. We all live through 2022, right? You'd think that if vibes get bad enough, consumers stop

spending money, but in 22, that wasn't the case. I think now it's a little bit more of a risk, but Michael, tell me, are the vibes that bad? Are the vibes wack? It depends which vibes. So put that chart back on for a second, because we spent so much time in 2022 talking about the disconnect between hard data and soft data. But we had to talk about the reason why people felt like shit was prices. It wasn't a brittle, right? Like everything was so goddamn expensive and people were pissed off. I think the difference between then and now is future expectations probably should be going down because if tariffs do go through, there's a lot of uncertainty and it is a tax. And so the vibes being whacked now make sense to me. Yeah, they make a little bit more sense than 22. And you still have the

prices are really high and they haven't come down. Don't get me started on that rabbit hole. But I think the difference that we need to hone in on too, Michael, and John, can you throw up the weaker job market chart? I think the difference that we need to hone in on too, Michael, and John, can you throw up the weaker job market chart? I think the difference that we need to hone in on here is how different the job market is today versus 2022. So I don't love rules of thumb, but I think one of the best rules of thumb for the economy is if people aren't spending money, then this thing doesn't work, right? is if people aren't spending money, then this thing doesn't work, right? Then growth suddenly stops. Consumer spending is 70% of the economy,

and consumers spend money when they're making money. It doesn't get that simple, but in some ways it does, right? So we saw that in 2022 front and center because everybody was worried about inflation, but the job market was red hot. I mean, 380K jobs added per month. That's the third best year for hiring in a century.

And you have stats like that for miles with the job market. We were at a point where employees, and this was great by the way, like fellow employee talking right here, employees had the upper hand in these negotiations and wages and flexibility and the amount of jobs they held. It was the year of the employee and even though prices were high, a lot of us were still making money. So we were like,

we were like, okay, the vibes suck, but I'm still booking that trip to Paris. Of course I am. That's not what's going on right now. Hiring is below average. Unemployment is rising. We're seeing layoffs come in both in the public and private sector. That's what makes me worried, Michael, because that present situation line, that blue line that was in the chart that I showed a few minutes ago, that could start coming down if we see enough job cuts. So that's where I was going. I do think that the hard data will catch down, maybe not all the way, but I think the hard date of this time, unlike 2022, will likely show up at some point.

Yeah, I agree. And I think I need to see the burden to prove. I need to see it happen, because this economy is so resilient and I don't want it to happen. But in 22, you looked at the job market and you said, there's a lot of cushion here. There's a lot of obvious cushion here. if you believe consumer spending is the base that

we're building up from, but that cushion is a lot thinner. That's why I'm worried. All right. We're going to talk more about belief and the benefit of the doubt and people buying the dip. Before we leave this topic, I just want to share a chart that I saw Mike Succardi tweet. This is an absolute chef's kiss for people that are listening. We're looking at, this is from Goldman Sachs. They say it's not unusual for hard data to

lag in an event driven downturn. So yeah, the feelings turn first because people can sniff out the fact that things are deteriorating. So that's the chart on the left. You see the soft data in red rolling over well in advance of the hard data showing up. Okay. That makes sense. We know that the current episode though, the disconnect it's, it is severe. Like the data has peaked. I don't know if it's rolling. Maybe if you squint, it's rolling.

But my goodness, look at the expectations. This is remarkable. Yeah. And as an investor, I think you can feel better about this hurting on the front end because going back to expectations versus reality, if your expectations are low enough, then kind of bad reality doesn't feel so bad.

But one stat I want to throw out at you, Michael, that conference board chart that I showed you, there has been a gap between future expectations and present conditions before every recession since 1970. This is how recessions start. They start with us feeling the ground shifting underneath us and kind of wondering what's wrong, you know, what's coming next.

And I guess it's a toss up after 22, if we move into the next phase, I hope we don't, but I think the job market is the key to if we do move into that next phase. And I don't know if this makes you feel better or worse, but you know, this is kind of normal, this is the economy going through the process in 2022, there was a lot of people, I was probably in this camp, I don't remember exactly, saying that like, this could be self-fulfilling. If we feel lousy enough, then we're probably going to stop spending, which will probably cause a slowdown, which will probably lead to a recession. But what if it's the opposite? What if when everybody thinks a recession is coming, we put our head between our knees, we brace for impact,

and can that prevent the plane from crashing? Maybe that's a weird analogy, but can our expectations of a recession prevent one? I don't know if that's too cute, but I think it's worth considering. I think it can soften the blow a little bit. I don't think I see what you're saying. Sorry to interrupt, but if a company and companies in the economy is prepared for things to be

worse, they're going to pull back and they're going to maybe not overexpand or overextend themselves or hire that person or take on that debt. All of that sort of stuff has impacts on the future. Yeah. Companies have been pulling back for three years now. They started in 22. And then it's always been this like, what's happening? What's happening?

And then we finally felt better last year and then tariffs came. So I think I was on a show with Ben, I was on Ask the Compound a few weeks ago and we were talking about the bull side of tariffs. And one thing that I kept coming back to was the fact that the economy was just, well, not the economy, but corporate America is so braced for this. It's in a really good position broadly to take on a hit. Profit margins are at a record high. Cash hoards are really big. The strongest companies on the market, the big tech companies that we were talking about, they have massive, massive competitive moats. Maybe a little overvalued because of AI. And I

say overvalued lightly because I don't think anybody knows what the value is right now. But yeah, we're strong. I think companies can take a little bit of pain. How much pain that is though, is the question. How much pain we're going to feel. All right. Let me throw a spicy sandwich at you. Rest in peace, CFA society Institute. I'm not the charter holder. I didn't say it. I'm not the charter holder. Don't revoke my, I don't even have the charter, but don't revoke my potential to get the charter. Or mine. All right. So let's play an audio clip and then we'll get into some of the details. John, if you please. I'm here to tell you that I honestly believe that the AI revolution is underhyped. And here's why. The arrival of this new intelligence will profoundly change our country and the world in ways we cannot fully understand.

And none of us, including myself and frankly anyone in this room, is prepared for the implications of this. What's happening at the moment in our industry is that we're very, very quickly, for example, developing AI programmers. And these AI programmers will replace traditional software programmers. We're building in the next year AI mathematicians that are as good as the top level graduate students in math. This is happening very quickly. You can look at this in a number of the products.

Today you think of AI as chat CPT, but what it really is is a reasoning and planning system that we've never seen before. The implication of this is profound. In terms of the way the algorithms work, they're going to need a lot more computation than we've ever had. They're going to need a lot more energy and I'll talk about that. That was Eric Schmidt, the former CEO of Google.

I don't know about you. I have been playing around more with some of these AI tools and obviously we're just at the beginning. So there was an article this week from the FT, there was an announcement, fundraising announcement. Where's my doc? Rogo was developed by a former analyst at Lazard, Gabriel Stengel, with the aim of automating some of the laborious tasks done by junior investment bankers. This company raised $50 million. I thought, hey, you can make a real AI analyst for Wall Street that can help augment senior bankers but also really help automate a lot of the grunt work that junior bankers

are doing. For those listening, the headline of the article said, meet your new investment banker, an AI chatbot. We do see this in the data, and the data that I'm referring to is the number of global people sitting for the chartered financial analyst test. It is down 42% from the peak and is RIP, rest in peace, CFA hyperbolic? Yes. But I do believe that is a generational top in CFA test takers. I don't think we will ever see that many again.

And I think it makes a lot of sense. Before I hand the mic over to you, Callie, the CFA did a lot for my confidence. I learned a lot. But if I was a young person now, there's no way that I would go into this field or seek that credential knowing that a lot of what you're going to learn is going to be, in fact, I should say, is being automated today. Wow, there's a lot to unpack here. I'm going to give you an analyst answer, and full disclosure, everybody knows I am an analyst, so I'm talking my book here. But good analysis, and I'll start with this.

So a lot of what junior analysts do, yes, you could probably automate it. We will probably get there. But the best analysts know how to marry context with data. And I think you're finding that more and more, especially in a world where there's such a big divergence in going back to future expectations and present conditions. We're seeing a lot of these big, big breaks

that somebody needs to step in and explain. This is different than modeling. This is different than modeling. This is different than iBanking. I still think that analysts have a use or I still think they have a role, human analysts have a role in iBanking. But I think it changes the job, Michael. I don't think it eliminates the need for people with EQ who understand the data, who can connect the dots that aren't as easy to connect, look at the psychological factors of things.

I don't think AI replaces that. I hope not because that means AI overlords are going to take over everything. I don't think we're there. What it does though, what it definitely does is it eliminates the need for 50 junior analysts at Bank XYZ. A lot of the tasks that they were doing, you can do today very quickly. Josh and I spoke about Adam Parker was doing some work with ChatGBT last week and asking about Nvidia expectations. And I'm using the quarter app and using their chat bot and a lot of the stuff

that analysts were doing. So it's not that they don't need to exist and that the work is invaluable and there's the soft side of it obviously, but the amount, the sheer number of candidates is going down dramatically. I agree with that. That's what I agree with. And I'll say it was already moving in that direction. You can see it from the chart, but research desks on Wall Street have been cut for years now. That's just a product of technology and automation. But I think you still, and I'll say too, so I took level one of the CFA.

I studied for level two, didn't end up taking level two because I signed up in June, 2020. We all know what happened then. But I think you have to have a really honest discussion with yourself about the CFA material. But for me, it was really, really helpful because I didn't have the basis in school that taught me about the basics of finance and money

and the time value of money and portfolio management. And it really helped marry everything together for me. I had all these scattered experiences and the CFA program helped me connect the dots. I didn't get the charter though, and clearly fewer people are getting the charter. It's a lot of work too. Yeah. Yeah. It's a lot of work too. Yeah. Yeah. Um, all right.

What's going on with the. Policymakers. Wait, you still don't, you don't want to fight over analysts anymore. I could do this for hours. I, I know, I know we'll move on. Okay. So happy fed week, everybody. Rate cuts are maybe coming sometime this year, probably not this week. Uh, so throw up this first chart, John, the Fed funds rate.

Yeah, yeah. Okay, so Wall Street thinks that we're gonna get three to four cuts, three to four 25 basis point cuts before the end of this year. This was pulled as of today. This was Fed fund futures expectations. Wall Street pretty much agrees that we're not gonna get a rate cut this week.

I agree with that too. I would be really shocked if we did. But there are some questions around if Jay Powell will step out and maybe set the stage for one in June. You know, do the typical Fed prompting where he doesn't really say it, but he kind of says it in the language that he uses. I don't think he's quite there yet, but I don't know. That would be less surprising to me.

Michael, I don't know if markets have really considered what it means in this environment to be considering cuts or to be expecting rate cuts. What I mean by that is the Fed's in a really weird position. It's between a hard and a, is it between a rock and a hard place. We're still not sure how tariffs will affect inflation. The Fed has told us multiple times that it cares about tariff-related

inflation and how it works into inflation expectations. The job market, we already talked about that. The job market is a lot weaker than 2022, but even compared to last year, we're seeing layoffs. The Fed is looking at both sides of its dual mandate, it's like legal obligation, and it doesn't know which one to focus on. So from where I'm coming from, if these conditions persist, or if one side of the mandate breaks in the wrong direction, if the job market falls apart, if unemployment spikes,

then yeah, we're probably gonna get a cut, but that's not the circumstances that you want to see a rate cut in. That's not good for the stock market. That's not good for your borrowing potential. That probably means that we're heading into a recession. He is in a weird position because on the one hand, it would be unusual to say the least to be cutting rates as one year inflation expectations go vertical. That would be odd. You don't really usually see that. However, the economy is softening. There is a lot of angst out there. The housing market sure could use it. Does

the current economy support Fed funds rates where they currently are? My naive opinion of this is, no, I think rates probably are too high. And I think the bond market is telling you that. What do you think? I agree with you. And I think that we're children of the 2010s. I say children, I mean,

people who started in the industry around like the late 2010s. And I always have to check this bias, but I agree with you. I also haven't worked in an inflationary environment, certainly not a stagflationary environment. There, I said it, stagflation. We're not there yet, but we're almost there. So I think that's right, but I don't think the Fed is convinced enough that something

could happen. And I also think that there's a lot of psychology that goes into this, Michael. Fed Chair Powell doesn't want to be the chair that's known for missing inflation twice. That is a bad reputation. Yeah, I get it. Listen, let me try and oversimplify this a little bit, because I know it's complicated and it's a huge responsibility. So there's risks on both sides. What if we cut prematurely and inflation just runs away from us?

Versus what if we don't cut, the economy weakens and by the time we cut, the damage has been done, it's too late. I think the latter is so obviously more dangerous because if we do cut and if we do get another spike in consumer prices, eventually, probably sooner than later, probably I have no idea, I'm making it up, sooner than later, the economy, the high prices will fix themselves because people won't be able to afford it, and prices will come down. Yes, I agree in a vacuum, but I think it gets really, really complicated. Actually, throw up the stagflation chart, John. No, John, don't. We don't want to see that. This is actually a really pretty chart. So This is the percent of Fed members who think that inflation and unemployment will move higher before it moves lower and vice versa.

Wait, hang on, hang on, hang on. Wait, Kelly, I've never seen this before. For people that are listening, this is very interesting. Walk us through what is on screen. Yeah, so every other Fed meeting, Fed members mark down a bunch of projections about rates, about the economy, about the risks in the future. They answer the same questions that we're trying to answer except they're PhD economists and academics. And this chart was taken from their last projections in March. And one of the questions that I find really interesting that they're asked these days

is, do you think inflation will move higher before it moves lower? Do you think unemployment will move higher before it moves lower? Or the opposite scenario, unemployment moves lower before it moves higher. They're basically saying, where are the risks to inflation and unemployment? And in the last meeting, 95 or greater than 80, I think it was closer to 90% of Fed officials said they think inflation will move higher and unemployment will move higher, which is your classic stagflation definition. So I take this as the Fed has no idea what's going on.

And if they're stuck in this cloud of uncertainty, they're probably going to do nothing. Like Powell's been pretty clear about it. And I think I agree with you, Michael, but I really don't think we see an action from the Fed until something breaks. All right. So we've got May, the May meeting this week, and there's a June meeting as well, right? Or does it skip to July? No, there's a June meeting and we'll get projections and the dot plot and everything

in the June meeting. I think it's like mid-June. All right. I know you will be tuned in. When is Fed Day? Is that tomorrow? Always. Yeah. Fed Day is tomorrow. Okay. 2 PM for the announcement, 2.30 PM for the press conference. The presser is always more interesting than the announcement. How do we get you an invite? I don't know, but I would faint if you got me at the press table before Jay Powell. I don't think I could get a word out. I'm a Jay Powell super fan. I don't know how many people know this. Yes, Michael.

How did you not know that? I didn't know that. Yeah. Yeah. I have the Jay Powell shirt. I'd have to send you a picture. I like Jay Powell. I have a whole shirt.

Yeah. I like Jay Powell. Oh yeah, that's right picture. I like J Powell. I have a whole shirt, yeah. I like J Powell. Oh yeah, that's right, you do. I do like J Powell. I was critical of how he handled the inflation, but he seems like a good person. I think he's done the best he can. Well, I mean, that's not really saying much.

I mean, you can do the best you can. Bless his heart, that's what we say in the South. Bless his heart. All right, let's talk. All right, this is one of the most fascinating topics on wall street these days, as far as I'm concerned. And that is the dichotomy and the divergence between what a lot of big money is doing versus what we, the people are doing.

And I got some daily chart book, another shot for them. Who is it? Okay, from Goldman. As long as there's full employment, as long as there's full employment, households are structural net buyers of US equities. They're now on 30% of total market, kind of wild. And the chart that we're looking at is the two week rolling net flow. And they bought the shit out of the dip once again. Yeah. Are we surprised everything boils down to the job market? If people have money, they're going to spend money and they're going to invest money. I don't know that I'm surprised necessarily that they bought the tip. I guess I'm surprised at how quickly they were rewarded. But look at this next one from Back of America Global Research.

Longest private client buying streak in their data history. Wow. Number of consecutive weeks of private clients were net buyers. It's 21 weeks in a row. But let me ask you this. But how do we... I know there's so much noise. It's like, what do we even... But how do we, and I know there's so much noise, it's like, what do we even, how do we marry that with the fact that sentiment is air quote terrible? And I'm looking at the AAII bull bear spread, which maybe this is just, I guess it's just the, it's just pure noise. Like there's no signal in here whatsoever. Maybe there never was, maybe there was in certain times.

But how do we marry the fact that you hear that sentiment is terrible and that people are buying the dip like there's no tomorrow? Well, I think it boils down to the job market. I hate to sound like a broken record. The job market is strong. People are making money. But also, yes, the vibes are whack around us. But if sentiment is this in the dump, first of all, people can say one thing and do another. True. Do as I say, not as I do.

Right? True. Talib said, don't tell me what you think. Show me your portfolio. Ooh, that's good. Yeah. That's really good. I think there's a lot of that going on.

A lot of things don't feel great. I'm going to keep buying because I have a 401k and I know that's the right thing to do. Or I DCA out of my paycheck, or I really like Nvidia, so I toss money in there every once in a while. But do I feel great about the future? No, clearly not.

I haven't felt great about it for a while. That AAII chart that you saw has been at extreme, extremely pessimistic levels for 10 weeks. This is actually the 10 week moving average. It's been really low for 10 weeks. This is actually the 10 week moving average. It's been really low for 10 weeks now. So people have felt terrible for months and months and months now, which on one hand, not great. That could be a self-fulfilling prophecy.

On the other hand, this beaten down sentiment could be responsible for these crazy bear market, not bear market rallies, but relief rallies that we're seeing in the stock market. You know what? Maybe this is only useful for content, which is fine. I'm fine with that. It gives us something to talk about. All right, but I want to talk more about the retail investor because I was listening to

the earnings call for the CME Group and they were asked, I think twice, about the retail investor. So Terry Duffy, chairman and CEO, said, let me comment as it relates to why I think the retail is different today than it may have been a year ago or 10 years ago. The retail today has many more tools to allow their participation into our marketplace, as much as well as many others

that they did not have just a few years back. So when you look at retail brokers today offering futures, we didn't see that before. There was a comment earlier about Robinhood now offering futures contracts of CMA. That was not around a few years ago. So the size of the retail market is so much bigger and diverse than it was years ago. I think that's one of the reasons why we're seeing not the takedown in retail and why we still see the uptake continuing. And it's just the distribution of

that product, the technology that allows people to participate, people have access to it, they want access to it. All right, we could stop there. But it's a different environment, I mean, obviously. Lacey Hough Yeah, and I think for the better. I'm interested in hearing what you think about this, and I kind of already know. But look, I think it's good when investors have more access to tools. Maybe that's the brokerage side of me speaking. I used to work at brokerages. But it's your money. Use it however you want.

Put the education out there. Investors are more sophisticated. Give them what they want. I think it's great. I love it. I'm all for it. There we go. I mean, there are a million caveats.

There are aspects of it I don't like. I don't like the fact that some people do irresponsible things. And all of that aside, on balance, I love it, even if I don't love all of it. All right, Robinhood, who credit to them, they have one of the prettiest, cleanest, easy-to-interpret slide decks. You don't need to be a CFA charter to understand what's going on here.

I pulled out some slides that I want to highlight. Net deposits were a record, $18 billion in Q1, translated into a 37% annualized growth rate and were $57 billion over the last 12 months. That is remarkable, $57 billion over the last 12 months. That is remarkable. $57 billion over the last 12 months. And Callie, this goes to your point, which I completely agree with. It is all, turn it off please, it is all about the labor market. We are not going to change our habits, I don't think, until we see the labor market turn. There's a lot of cash out there. My question is, when you got to the end of the side deck, did confetti fall from the ceiling?

All right. Two more charts. Look at this trading. Q1 trading volumes increased double digits year over year. We're looking at equity notional volumes up 84% year over year. Options contracts up 46% year over year. And crypto just skyrocketing. So yeah, people are trading their asses off. And you know, again, some good, some bad, but people are doing it. I like this. I like this a lot. The average cumulative net deposits tend to grow over time across our funded customer cohorts. So this is one of the prettiest charts I've ever seen.

It shows their customer cohort key, so people that joined in 2021 versus the next year all the way up to today. And what it clearly shows is that the people that have been funding it for a while are making larger and larger deposits, which is phenomenal, phenomenal. Yeah, it also means that Robinhood is executing well as a brokerage because that's what you want a brokerage customer to do. You want them to keep depositing, keep trading. That wasn't happening in 21, by the way.

A lot of brokerages are sitting here with 21 customers that jumped in, made a trade or two and took all their money out because they got burned and now they have a bunch of inactive accounts. So props to Robinhood, I guess. I wonder what it would take to really break the psychological bull market. I think it would have to be a series of lower highs, a series of bear market rallies that roll over, and it would have to last, I don't know, I don't know. Is it three years?

I mean, eventually people stop. I think a lot of people, myself included, in the data you saw were really excited about buying a crashing market. Woo-hoo! We were rewarded really quickly. Wonderful. But you're going to be a lot less excited about buying it if we test the lows, right? Less money will come in, I would suspect, and less still if we bounce and roll over

again. And maybe it's just that simple. The market needs to change for people's psychology to change. But the flip side to that is 2022 was a grinding, grinding bear market. And it wasn't the worst one we've seen by a long shot. And it was also not accompanied by a lot of job cuts. So I don't know. But I think it's going to take a lot.

I think it's going to take a lot to break the average US investor. And I don't want this to happen. I want everybody to thrive here. I want everybody to have the tools that they need, but you can't walk back sophistication. You can't walk back education. I think we're there. I think this is an evolution and I'm not sure you break that that easily. I think the bar is a lot higher for that. Yeah. All right. Anything else on retail, Wall Street versus Main Street, dip buying, we good? I think you nailed it right there. And I'm just, just go retail investors, go everyday investors, keep kicking ass.

Love it. All right. Let's wrap up with Tower of Some Movies. I mean, he already walked us back, so whatever, but let's, you know, we could discuss briefly. Okay. So I guess we'll throw up the truth social post and we'll go from there. Go ahead. All right.

Oh, I have to read what Trump said? Okay. The movie industry in America is dying a very fast death. Other countries are offering all sorts of incentives to draw our filmmakers and studios away from the US, Hollywood and many other areas within the USA are being devastated, blah blah blah. Therefore I am authorizing the Department of Commerce and the USTR to immediately begin the process of instituting a 100% tariff on any and all movies coming into our country."

Look, I'm not here to litigate if Trump is gonna do this. You said he walked it back. We know that he's the king of snip-snapping. So, you know, next week, who knows? But, I mean, we're talking about tariffs on services now? What? I don't think our mind has fully gotten to the point. Because when we think about tariffs,

we think about your Italian leather shoes. We think about that 30 Dolls comment, the Barbie dolls that you're importing from overseas, we think about TVs. We don't think about cloud contracts. We don't think about movies. We don't think about other tech services. Services spending is a huge part of spending. Services are a huge part of the economy. Markets weren't really prepared for a tariff on spending. Services are a huge part of the economy. Markets weren't really prepared for a tariff on services. If this goes further, I have to wonder how that translates into stock market performance. Yeah.

That was such a good point, the observation that you made. It didn't even occur to me because I didn't even think one step past the headline of how nonsensical this idea was. The idea of tariffs and services, listen, I don't want to go there. I don't think it's going to happen. It's funny because they're ironic. I don't know if it's funny or ironic actually. It's just maybe perhaps interesting that he's not 100% wrong on this because the movie industry

is getting shellacked and a lot of the production is going outside of the United States. So maybe tariffs aren't the right weapon to make it better. But I want to quote Matt Bellamy at Puck. Matt said, Trump is right about one thing. The US movie industry is dying a very fast death, at least the movie and TV production business. For the reasons

we're all very familiar with. From 2022 to 2024, there were 241 American movies released with budgets of $30 million or more, and only a third of those were shot in the US. And he goes on to say, Disney's Bob Iger might talk publicly about loving LA, but he'd happily ship 100-year-old Dick Van Dyke to Bulgaria for a Mary Poppins reunion special if it saved a little money. Everyone in Hollywood just accepts us now. One final data point on this. This is from Morning Brut.

It said that from 2021 to 2024, film and TV production spending in the US dropped 28%. Tax incentives and lower labor costs have attracted the industry to Canada and overseas to countries like Australia and parts of the UK. I don't disagree. The movie industry has, I mean from the writer's strike to COVID shutting down production, it's been a really hard few years. Services, they're just like us, right? But I don't think tariffs are the way to go about this. I mean, I'll state the obvious,

but thinking back to portfolios, I still don't think we have a good handle on even what enacted tariffs mean for services and what it means for the business relationships in these multinational companies. I have to wonder if this is something where five years later we look back and we were like, oh, so obvious. It was so obvious, but at the time it was- What was?

The impact on services spending and business relationships, the squishy stuff, you know, not the actual goods that are being tariffed. And my point is the squishy stuff, the intangibles, the services are a lot, it's a lot, it makes up a lot more of the economy and the capital markets than people realize, which makes me worried. I don't know. I sound kind of doomer, but yeah. No, you don't.

It's okay to be worried. So you look at a lot of data, you look at a lot of manufacturing data, services data, all the economic data, the labor market, the spending, the this and the that. When do you think some of the hard data will reflect some of the pullback that we're seeing. Because it is going to show up, right?

It's already showing up. We got layoffs data last week and private sector layoffs were around the highest they've been since 2020 and before that 2009, which are not the best analogies you want to you want to pull up around this so Think it's I think it's at the very beginning of happening Everybody's been following shipping volumes to see when prices increase because you know takes a while for goods to get from Trinity here We are seeing shipping volume volumes finally drop. We're seeing companies a load up on inventory But now they're saying a lot of them are saying that they're going to pass the prices on. I worry that we're kind of on the cusp of seeing something, especially because we're seeing layoffs data increase,

and that's job market data. But how it translates into the health of the American consumer, I mean, I would have expected to see unemployment claims rise a lot quicker than they have. They haven't really risen at all. How they flow into hiring, how they flow into spending, I think that's still a big question mark, Michael. So let me ask you this. How does the market, and this is a loaded question,

let's just pretend for a second. Does the market react immediately negatively to software data? Because we saw a pretty nasty gap down. Did we get a weak GDP report? But they bought it back in two seconds. Is it because a softening economy is going to lead to a more dovish Fed? Or how do you think the market will interpret softer economic data? I think about this a lot because, I mean, have you seen how quickly people buy back

into dips like you said? I think at a certain point, if you see enough job cuts, enough of a pullback on spending, enough of a pullback on investing, enough of a pullback on investing, that's basically where I was going. If you see incomes come down enough, then you don't have money to put into the stock market. That's, and you don't have money to spend. That's the problem with recessions.

They're so insidious. And even if you're not losing your job, you have a portfolio that's down 20% or has fallen 20% and you're worried about that. We were all worried in April. You have friends and family who have lost jobs. The pizza place down the street is closing because it can't handle costs. The sick feeling that you get in your stomach just hurts so much worse when the economy cracks from underneath you. So I am still of the opinion, and I don't have a crystal ball, have no idea if this is going to happen, but I'm still of the opinion that if we see a recession, then we might see a

deeper sell off and we might see a sell off that isn't V shaped, isn't immediately bought because there are a lot of question marks and we can't just, I think we're at the point where Trump can't just like walk tariffs back and then can't just, I think we're at the point where Trump can't just like walk tariffs back and then avoid economic damage. I think it's been done. All right, well, that's a horrible place to leave it, but you know, we're out of time. I know, can we end on a better note?

Sure, what's on your mind? Let's go next, 75 degree day in Charlotte. Let's go next. The world makes it through every single time. We always do. We always do. All right, Thank you everybody for tuning in. Callie, you were excellent as always. Josh will be back next week. Thank

you to our sponsor, Grayscale. Thank you to Duncan and John and the entire team behind the scenes making this possible. We will see you. Oh, wait a minute. We've got an animal spritz tomorrow. We've got an Ask the Compound also later in the week. We will see you, oh wait a minute, we've got an animal spritz tomorrow. We've got an Ask the Compound also later in the week. We will see you next week. Thank you for riding with us. Have a great night. Whether you're just getting started as an investor or you're managing a multimillion dollar portfolio, Ridholtz Wealth Management has the solution for you.

It all starts with building the right financial plan to speak with a certified financial planner today. Visit ridholtzwealth.com. Don't forget to check us out at youtube.com slash the compound RWM. Make sure to leave a rating and review on your favorite podcasting app. If you love investing podcasts, check out Michael

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