Episode summary
What Would You Do With $3 Million? | Animal Spirits 451
Animal Spirits
· · Hosts: Michael Batnick, Ben Carlson
Summary
The hosts argue that the market is in a major rotation even though the S&P 500 has been near flat: equal-weight, small caps, value, consumer staples, and many non-mega-cap names are outperforming while the Mag 7 and software have gone nowhere or fallen sharply. They frame this as a real stock picker’s market, with broad dispersion, record ETF flows into sectors outside tech, and a meaningful shift in leadership away from the biggest growth names.
A big part of the episode is the software unwind. The hosts tie the selloff to Anthropic, AI coding, and the possibility that AI changes software economics faster than expected. They agree the near-term repricing makes sense, but argue that many software businesses will still matter because companies need support, integrations, compliance, and ongoing maintenance. At the same time, they warn that private credit and private equity managers are exposed to software borrowers, so the damage is not limited to public software stocks.
They also connect the AI buildout to huge capex at hyperscalers, with spending levels that could reshape GDP and earnings narratives. Outside tech, they make bullish cases for emerging markets and international stocks as the dollar weakens and foreign capital demand for U.S. assets fades. Crypto and silver are treated as part of the same broad speculative washout, with the hosts saying they are willing to trade these panics but are not yet declaring a durable bottom.
Key takeaways
- The hosts say the market is broadening sharply, with equal-weight, small caps, value, and staples outperforming while the Mag 7 has stalled.
- They argue the software selloff reflects a real AI-driven rerating, but not necessarily the death of software as a business model.
- Private credit is vulnerable because roughly 70% of some borrower pools are software companies, and BDCs have been hit hard.
- The hosts see a bull case for emerging markets because the dollar may keep weakening and foreign demand for U.S. assets has cooled.
- They think hyperscaler capex is so large that it could drive GDP and earnings narratives, even if the market eventually pushes back.
Notable quotes
“The average stock last week was up almost 2%. 337 stocks outperformed the index last week”
“this really is a totally different market environment we're in right now”
“the industrywide rerating seems completely justified to me and I could not agree more”
“The market is experiencing an aggressive rotation from high multiple growth into tangible capital intensive businesses”
How the episode opens
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All investing is subject to risk, including the possible loss of principle. Pacer ETFs are distributed by Pacer Financial. Welcome to Animal Spirits with Michael and Ben.
It is Tuesday, February 10th. We're recording at 9 in the morning. Uh, all right.
Future Proof is coming up. I am excited to get the hell out of Dodge. It is cold.
All it's cold here. It's cold where you are, Ben. You excited for some sun?
I can't wait. The timing of Future Proof conferences are great because September is like the end of the summer. We extend the summer a week or so.
Miami in March is great timing cuz I'm so sick of the weather. I said um at the opening remarks in in Huntington Beach that September, the September event is the start of my fiscal year. That's like that's how I think about I'm trying to come up with something for Miami.
Don't have anything quite yet.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- bull market changes
- ai narrative
- crypto market
- stock picking
- personal finance
Companies and tickers mentioned
- Anthropic
Watch the episode
Watch “What Would You Do With $3 Million? | Animal Spirits 451” 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.
