Episode summary
Everything Is Outperforming the S&P 500 This Year | Animal Spirits 470
Animal Spirits
· · 1 hr · Hosts: Ben Carlson, Michael Batnick
Summary
The hosts argue that the stock market’s biggest surprise this year is breadth: the S&P 500 is up, but the Russell 2000, value stocks, REITs, emerging markets, dividend stocks, and especially semiconductors are all outperforming. They see the MAG 7 losing their old invincibility as evidence that diversification is finally working again, even while the index itself is still solidly positive. They also connect the rise in AI spending to a shift in market leadership, with the hyperscalers taking on more capex and more balance-sheet risk while other parts of the market benefit.
A large part of the episode is about contradictory data that can be used to tell many stories at once. The hosts discuss elevated retail trading in stocks and prediction markets, but also household cash balances that are high by historical standards, and investor surveys that show lingering skepticism about AI. They argue that these mixed signals are normal in a market shaped by fast-moving narratives, not a single clean bubble or bust.
They also touch on broader economic and cultural changes: resilient consumer spending, rising new business formations, AI making business tasks easier, and even self-help books losing ground to AI tools and podcasts. Across the conversation, their core point is that America’s economy is still producing winners, but the winners are changing quickly.
Key takeaways
- The hosts say the rally has broadened well beyond the MAG 7, with small caps, value, REITs, and emerging markets all beating the S&P 500.
- They argue that AI spending is helping some companies and compressing the old advantage of the hyperscalers by pushing them toward heavier capex and lower margins.
- The hosts say investor-behavior charts are noisy and can support almost any narrative, so the source and framing matter as much as the data.
- They think household cash is high partly because retirees and baby boomers are comfortable earning 3% to 4% in cash after bond losses.
- They point to a surge in new business applications as evidence that AI and easier tools are making entrepreneurship more accessible.
- They view the current environment as speculative, but less manic than 2021 because more of the rally is tied to real earnings and margins.
Notable quotes
“Everything is outperforming the S&P 500 this year. And so I got Russell, this is through the close on Monday”
“because the MAG7 are not participating in the rally and that is keeping a lid on the S&P 500 returns”
“I think I think the story makes sense. you're seeing the erosion of um the halo that these stocks had”
“household cash as a percentage of total financial assets is now 8%. That's higher than it's been at any time since 1990”
“AI can do it for us now in the blink of an eye”
How the episode opens
Every REA knows the tension. You don't want to turn people away. You don't want to require high minimums.
And you want to help clients who are just getting started because that's where the long-term relationships begin. But here's the truth. Those simple accounts, they take a lot of work.
Account opening, trading, rebalancing, and before long, your staff and back office are underwater and trying to stay afloat. That's why established RAAS are turning to Betterment Advisor Solutions. It's the platform built for segmenting your book and streamlining the smaller and simpler accounts.
The onboarding experience is automated and paperless. The portfolio management is streamlined and tax efficient. The client experience is consistent and exceptional.
Explore what segmentation could do for your firm today. Lower your operational lift, but keep your standard of service high. All with Betterment Advisor Solutions.
Your biggest regret will be not doing it sooner. Learn more at betterment.com/advisors.
Welcome to Animal Spirits with Michael and Ben. Michael, something is happening in the market that I don't think people really thought was possible as recently as 12 18 months ago. Everything is outperforming the S&P 500 this year. And I'm going to start with the this is through the close on Monday. You know what? I got a bone to pick with you.
Go ahead. — Your attention it's not there. I feel like we need to go to couples counseling. — There's a lot. I'm sorry. I apologize. — All right. I want right here. What's going on in your life? You got problems? Yes.
All right. Figure it out. I'm kidding. All right. Everything is outperforming the S&P 500 this year. And so I got Russell, this is through the close on Monday. The numbers don't matter cuz things are changing today, but the Russell 2000's outperforming by, it's like doubling the S&P.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- s&p 500 outperformance
- diversification
- ai winners and losers
- mag 7 underperformance
- investor cash holdings
Watch the episode
Watch “Everything Is Outperforming the S&P 500 This Year | Animal Spirits 470” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
More from Animal Spirits
Animal Spirits, this episode and its artwork belong to The Compound. Octagon is not affiliated with the show; this page is an independent summary.
