Small Caps Are Back (EP. 448)

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Jan 21, 2026

Explore the resurgence of small caps and their potential benefits from falling rates. The hosts dive into geopolitical risks affecting markets and rising bond yields, while also reflecting on historical parallels from 1913. They discuss how household balance sheets look robust and the great real estate wealth transfer looming. There's a touch of humor as they critique the state of Netflix movies and franchise fatigue in cinema. Finally, they weigh geopolitical noise against corporate earnings risks, anticipating an eventful market ahead.

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INSIGHT

Markets Limit Political Overreach

Financial markets act as an informal check on extreme political moves by reacting quickly to tariffs or threats.
Michael Batnick argues bond and equity market moves capped harmful policy proposals.

insights

INSIGHT

Vertical Yield Spikes Signal Risk

Rapid rises in long-term government bond yields can signal instability rather than healthy growth.
Ben Carlson warns that vertical yield moves are rarely a good sign for an economy.

insights

INSIGHT

Small Caps Are Breaking Out

Small caps and cyclicals are outperforming as investors rotate from mega-cap AI winners into economy-sensitive names.
Michael Batnick sees this as a potential 'year of small caps' if GDP and earnings stay strong.

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Markets React to Greenland Tariff Threats

01:10 • 3min

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Reading 1913 and Historical Perspective

04:35 • 3min

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Financial Markets as a Check on Policy

07:18 • 2min

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Rising Global Bond Yields and Japan's Spike

08:48 • 2min

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U.S. Yields, Volatility, and Gold's Move

10:28 • 3min

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Extreme Market Concentration in Mega Caps

13:36 • 2min

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Small Caps' Breakout vs. Mega Cap Rotation

15:16 • 2min

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Why Small Caps Could Benefit from Falling Rates

17:19 • 2min

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Running the Economy Hot: Fiscal, Monetary, Credit

19:49 • 3min

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Investor Expectations and Elevated Earnings Forecasts

22:31 • 53sec

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Household Balance Sheets Look Strong

23:24 • 3min

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Multifamily Delinquencies Explained

26:08 • 3min

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Revisiting the Financial Crisis Books

29:01 • 2min

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Will AI Make Money Worthless?

30:52 • 3min

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AI's Limits: Rain Man Analogy and ChatGPT Quirks

33:35 • 3min

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Exchange Innovation: NYSE Tokenized Settlement

36:10 • 3min

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Mortgage Rate Distribution Normalizing

39:00 • 1min

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The Great Real Estate Wealth Transfer

40:00 • 4min

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Wealth Gains by Percentile Since 2012

44:26 • 4min

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Consumer Anecdotes, Travel, and Entertainment

48:11 • 3min

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Netflix Movies and Changing Attention Spans

51:16 • 2min

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2026 Movie Slate and Franchise Fatigue

53:15 • 2min

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Personal Stories: Kids, Wrestling, and Home Projects

55:45 • 6min

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Geopolitical Volatility vs. Corporate Earnings Risk

• Mentioned in 3 episodes

1913

The Year Before the Storm

Florian Illies

In '1913: The Year Before the Storm', Florian Illies provides a month-by-month account of the year 1913, detailing the vibrant cultural landscape and significant political events that preceded the First World War. The book features accounts of notable figures such as Marcel Proust, Igor Stravinsky, Kazimir Malevich, Louis Armstrong, Charlie Chaplin, and Coco Chanel, among others. Illies captures the spirit of creative freedom, daring experiments, and breakthroughs in culture, science, and technology, while also highlighting the ominous signs of impending disaster. The narrative is enriched with historical facts, photos, and documentary artifacts, making it a charming and riveting tale of a world on the brink of change.

#7412

• Mentioned in 6 episodes

All the Devils Are Here

Joe Nocera

Bethany McLean

This book delves into the motivations and actions of various individuals and groups, from CEOs and politicians to lenders and home buyers, to explain the complex web of factors that led to the financial crisis. It goes back several decades to weave the hidden history of the crisis, highlighting how it was not just about finance but also about human nature and the American mythology of homeownership.

#462

• Mentioned in 58 episodes

Too big to fail

The Inside Story of How Wall Street and Washington Fought to Save the Financial System---and Themselves

Andrew Ross Sorkin

Too Big to Fail by Andrew Ross Sorkin provides a minute-by-minute account of the events surrounding the 2007-2008 financial crisis. The book chronicles the collapse of Lehman Brothers and the subsequent efforts by Wall Street and Washington to save the financial system. It is based on hundreds of interviews with top executives and regulators, offering a detailed and dramatic narrative of the crisis, including the motivations of ego, greed, fear, and self-preservation that drove the key players. The book also explores the intricate web of decisions and actions that led to the crisis and the measures taken to mitigate its impact.

On episode 448 of Animal Spirits, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Michael Batnick⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Ben Carlson⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ discuss geopolitical risk in the markets, rising bond yields, why small caps are breaking out, running the economy hot, household balance sheets are in good shape, the end of money, the great real estate wealth transfer, the bottom 50% wealth gains, Netflix movies and more.

This episode is sponsored by YCharts and ClearBridge Investments.

To download YCharts’ Top 10 Visuals click here: https://go.ycharts.com/the-top-10-visuals-for-clients-and-prospects?utm_source=Animal_Spirits&utm_medium=Original_Research&utm_campaign=Top_10_Visuals_Deck&utm_content=Podcast And start your free YCharts trial through Animal Spirits (new customers only) at: https://go.ycharts.com/animal-spirits

International and emerging market stocks outperformed the U.S. in 2025. At ClearBridge, we believe this momentum can continue. Find out more at https://www.clearbridge.com/

Sign up for The Compound newsletter and never miss out: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠thecompoundnews.com/subscribe⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠

Find complete show notes on our blogs:

Ben Carlson’s ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠A Wealth of Common Sense⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠

Michael Batnick’s ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Irrelevant Investor⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠

Feel free to shoot us an email at ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠animalspirits@thecompoundnews.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ with any feedback, questions, recommendations, or ideas for future topics of conversation.

Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Ben Carlson are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management.

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