Welcome to 2026 - The Compound and Friends Recap

Podcast: The Compound and Friends

Published: 2026-01-02

Duration: 57 minutes

Guests: Ben Carlson

Summary

The episode forecasts major economic and market trends for 2026, highlighting the impact of AI, stock performances, and shifts in global markets. Key insights include technology's dominance in market returns and the ongoing challenges for active managers.

What Happened

In 2026, Lamb Research has emerged as the top-performing stock in the S&P, a surprising development given its previous standing. The episode delves into how generative AI has become a significant driver of S&P 500 returns, with 65-75% of profits and capital spending linked to 42 companies in this space. This has resulted in tech sector capital spending contributing to 40-45% of recent U.S. GDP growth.

Lululemon faces a challenging period with its stock down 60% from its peak amidst a proxy fight. Similarly, Nike is experiencing its worst multi-year stretch, having been down for four consecutive years. Meanwhile, Netflix is in a 30% drawdown but is pivoting towards podcasting to diversify its offerings.

Uber's stock, after a 35% rise in 2025, is now in an 18% drawdown. The company's collaboration with Waymo and other firms for autonomous vehicles could potentially transform its profitability by removing driver costs. Adobe and Salesforce are also facing significant drawdowns due to concerns about AI's impact on their core business models.

The technology sector has seen the largest valuation contraction despite a 34% EPS growth and a 23% price increase. Notably, Tesla's valuation has surged, moving from 100 times to 300 times trailing 12-month earnings, reflecting market optimism about its future prospects. Conversely, Broadcom's valuation decreased due to the financial impact of acquiring VMware.

International stocks and emerging markets have performed exceptionally well, with increases of 30% and 35% respectively. Japan's stock market has also enjoyed a significant upswing, growing by over 25% in the past year. This global growth contrasts with the underperformance of many individual U.S. stocks compared to the S&P 500.

The episode discusses how active managers continue to struggle in outperforming the S&P 500, with most failing to beat the benchmark. This trend underscores the difficulties of stock picking in a market heavily influenced by AI and technology-driven companies.

Key Insights