The Compound
Did the Market Just Top? | Animal Spirits 434
10/15/2025, 1:02:09 PM
Economic Summary
- Earnings drive markets: forward P/E alone is insufficient — markets tend to crash only when actual EPS falls short of lofty estimates, so watch quarterly results closely.
- Valuation context matters: when forward PE is normalized by profit margins, current readings are closer to 20-year averages and far below 2000 bubble extremes.
- Retail participation is rising: a majority of lower earners now hold investment accounts and large increases in 25-year-olds investing suggest broader wealth-building via equities (implication: deeper, more durable demand).
- Household balance sheets are healthy: households hold roughly one dollar in cash for every dollar of debt, indicating low leverage and capacity to borrow if needed in a downturn.
- Cash-on-sidelines is overstated: large money market balances appear reasonable relative to elevated stock prices, so a sudden wave of cash flowing into equities is unlikely without a catalytic change in investor behavior.
Bullish
- Delta (DAL) is capturing a dominant share of industry profits and benefits from returning corporate travel.
- Calamos CANQ ETF offers NASDAQ upside with built-in downside management via options and fixed income.
- Households are relatively deleveraged (roughly $1 cash per $1 debt), suggesting consumer balance sheets can absorb downturns.
- Retail and younger investors are materially increasing market participation, broadening the investor base.
- Normalized measures (forward PE adjusted by profit margins) show current valuations are nearer 20-year averages, not 2000 extremes.
Bearish
- Market valuations are elevated, leaving less margin for error if corporate earnings disappoint.
- Earnings disappointments historically trigger bear markets — forward P/E can be misleading until EPS rolls over.
- Geopolitical shocks or policy moves (e.g., Trump tariff tweet) can provide excuses for sharp sell-offs.
- Speculative, no-revenue stocks (e.g., OCLO) are highly risky and prone to large drawdowns.
- Media-driven panic and broken sentiment indicators can amplify downside during market hiccups.
Bullish tickers
CANQDALHOODBLKJPMMSBACSCHWGS
Bearish tickers
OCLODIS
CANQ
Bullish
Seeks NASDAQ 100 upside while managing downside with options and fixed income; captured 96% of upside with 65% of downside (Feb 2024–Jun 2025).
Bearish
New ETF (inception Feb 2024) with a limited track record; downside protection may underperform in extreme stress.
DAL
Bullish
Delta reportedly accounts for ~60% of industry profits and benefits from strong premium-cabin and corporate travel recovery.
Bearish
Airlines remain cyclical and sensitive to fuel costs, labor, and economic slowdowns.
HOOD
Bullish
Robinhood has expanded retail access; many first-time investors are entering markets via platforms like HOOD.
Bearish
Reliant on retail activity; exposure to speculative trading themes can amplify downside.
BLK
Bullish
BlackRock data cited shows rising investment among lower-income households, supporting long-term asset growth.
Bearish
Asset managers face distribution and market-cycle risks if markets materially decline.
JPM
Bullish
JPM research highlights a big increase in young investors using brokerage accounts, indicating structural demand growth.
Bearish
Bank earnings and consumer banking exposure can suffer in economic stress.
MS
Bullish
Morgan Stanley research noted S&P forward PE normalized by margins is not as extreme as 2000, tempering bubble claims.
Bearish
Investment banks can be hit by market volatility and deal slowdowns.
BAC
Bullish
Bank of America data shows households are relatively deleveraged, which supports consumer resilience and banking stability.
Bearish
Banks are sensitive to credit cycles and interest-rate shocks.
SCHW
Bullish
Charles Schwab analysis suggests money market assets relative to the S&P are not an obvious catalyst for a flood into equities.
Bearish
Brokerages depend on trading volumes which can fall in bear markets.
GS
Bullish
Goldman’s basket highlighted strong YTD returns for thematic groups, showing pockets of durable investor demand.
Bearish
Goldman Sachs clients and hedge exposures can magnify sector-specific drawdowns during momentum losses.
OCLO
Bearish
Called out as 'no revenue, no product' — extremely speculative with high downside risk.
DIS
Bullish
Disney still has valuable franchises and streaming distribution options that can pivot underperformance to direct-to-consumer releases.
Bearish
Box-office failures (e.g., Tron) and disappointing park food/experience can pressure short-term revenue and sentiment.
People mentioned
MichaelBenMattBarryHoward MarksRobert KiyosakiElon MuskKata SuscantaGlenn HauensteinScott NationsScott MendelsohnGeorge ClooneyJosh