Episode summary
The Biggest Risk in 2026 | Animal Spirits 444
Animal Spirits
· · Hosts: Michael Batnick, Ben Carlson
Summary
The hosts argue that 2025 looked chaotic at the intrayear level but was ultimately a fairly normal stock-market year when judged against history: a roughly 19% drawdown and a 17% annual return fit the pattern of “most years” being wild. They use that framing to push back on the idea that 2026 must bring a crash, even as surveys show many investors worrying about tech valuations, AI enthusiasm fading, or other obvious risks.
They spend a lot of time on market structure and investor behavior. Small and mid cap stocks are presented as a potentially attractive laggard, with valuations well below the S&P 500 and a possible catalyst from lower rates. They also note that more stocks doubled in 2025 than in any year since 2013, while record ETF launches, heavy equity ETF flows, and huge cash balances suggest investors are still aggressively participating despite constant complaints about complacency.
The conversation widens into the economy, gambling, crypto, and private markets. They say the economy keeps growing faster than many people believe, inflation remains near enough to wage growth to be plausible, and AI may keep overpowering recession scares. On the darker side, they see financial nihilism in mobile casino play and warn that private-market structures can create ugly liquidity mismatches, as the Blue Rock real estate fund episode showed.
Key takeaways
- The hosts think 2025 was a normal market year in disguise, because a 19% drawdown alongside a 17% gain fits historical patterns.
- They see small and mid caps as a plausible 2026 outperformer because valuations are much cheaper than the S&P 500 and lower rates could be a catalyst.
- They argue that ETF flows, cash balances, and the number of double-up stocks all show investors are still aggressively engaged in risk assets.
- They believe the economy is still growing robustly, and that AI has repeatedly offset recession, housing, and tariff fears.
- They warn that mobile gambling and some private-market structures are creating real behavioral and liquidity risks for retail investors.
Notable quotes
“most years in the stock market are crazy”
“What comes first, 50% or 30%”
“Households continue to hold near record cash balances, 98 percentile historically”
“the economy keeps growing and a growing number of people seem to seem to just not believe it”
“the market is seriously pushing back which I think is the best possible setup heading into 2026 and beyond”
How the episode opens
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Welcome to Animal Squares with Michael and Ben. Uh, as we wind on down the year. Hey, can you believe it's over already? 2025 in the books. See you. — Went so fast. — You know, I'm a You know, I'm a big can you believe guy?
Oh, yeah. Can you believe it's already fall? Can you believe it's already winter? — Every season you say. — Yeah. I I really can't. — Can you believe Christmas is in a couple days? I can't believe. Well, when this comes out, it'll be Christmas Eve.
We used to We used to do a time stamp. When are we recording? You used to do that every show. — Oh, that's right. It's uh it's Tuesday, December 23rd. It's 9:09 in the morning on the Eastern time.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- stock market drawdowns
- small mid cap stocks
- record cash balances
- private markets illiquidity risk
- crypto and gambling
Companies and tickers mentioned
- HOOD
- TradePMR
- Robinhood Markets
- Ritholtz Wealth Management
- The Compound Media
Watch the episode
Watch “The Biggest Risk in 2026 | Animal Spirits 444” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Animal Spirits, this episode and its artwork belong to The Compound. Octagon is not affiliated with the show; this page is an independent summary.
