The Biggest Risk in 2026 (EP. 444) - Animal Spirits Recap

Podcast: Animal Spirits

Published: 2025-12-24

Duration: 1 hr 7 min

Summary

Michael Batnick and Ben Carlson analyze the dynamics of the stock market, exploring potential risks in 2026, and the economic climate influencing investments. They focus on market trends, the role of AI, and the psychological impact of financial volatility.

What Happened

Michael Batnick and Ben Carlson begin by examining what constitutes a normal year in the stock market. They highlight the significant number of stocks that doubled in 2025, a peak not seen since 2013, indicating a unique market phase. The discussion points toward the potential for small and mid-cap stocks to outperform due to their lower valuations compared to large caps, with mid-caps trading at a PE of 15 versus the S&P 500's 22.

The hosts discuss the surprising resilience of the economy, noting a robust GDP growth of 4.3% in the third quarter and the diminishing fears of a recession from earlier predictions. Household wealth is increasingly tied up in stocks rather than real estate, supported by near-record cash balances at the 98th percentile historically.

They address the risks posed by tech valuations and waning AI enthusiasm, with a Deutsche Bank survey highlighting these as potential threats to market stability by 2026. Financial nihilism among Gen Z is discussed, as rising unemployment rates among young adults contribute to a lack of trust in institutions and fear of AI's impact on job security.

The episode delves into private investment risks, where illiquidity can pose significant challenges. Blue Rock Private Real Estate Plus's redemption issues led to a substantial drop in net asset value, illustrating the potential pitfalls in private markets.

Wage growth remains stable, averaging 4.1% annually since April 2023, aligning with inflation trends. This stability, alongside stable gaming revenues in Las Vegas despite declining visitor numbers, highlights contrasting economic signals.

Cultural discussions touch on the adaptation of Robert Caro's 'The Power Broker' for Netflix, emphasizing its significance. The enduring appeal of Cameron Crowe's works, including his memoir 'The Uncard', is noted, reflecting on his influential career in film and journalism.

Key Insights