Is the Bear Market Over? (EP.311)

Episode Summary

Executive Summary: The episode is a wide-ranging market and culture discussion centered on whether the 2022 bear market is truly over, the dominance of mega-cap tech, and what resilient consumers, labor markets, and housing dynamics mean for the economy. The hosts also touch on demographics, AI/VC momentum, travel, shopping frustration, and TV/movie recommendations, keeping a conversational, opinionated tone throughout.

Main Topics: Bear Market Over? Higher Rates and Mega-Cap Recovery (Priority: 5/5): The hosts debate whether the bear market tied to inflation and rising rates has ended, noting the S&P 500’s strong rebound and the market’s quick digestion of Fed hikes. They distinguish between a rate-driven bear market being over and a new bull market still needing proof. Mega-Cap Tech Concentration and Index Dominance (Priority: 5/5): They discuss how Apple, Microsoft, Google, Amazon, Nvidia, Meta, and Tesla have become so large that they now rival or exceed entire sectors, highlighting the growing concentration in the Nasdaq 100 and the outsized impact of a few names. Market Timing, Fund Flows, and Retail Sentiment (Priority: 4/5): The hosts revisit the temptation to move into cash/T-bills when rates rose, arguing that market timing is hard because being wrong on the rebound is especially painful. They cite flows out of active funds and into index funds, plus evidence that retail was net-seller before the rally. Labor Market Resilience and Inflation Debate (Priority: 4/5): They note continued job gains, higher labor-force participation, and a still-tight labor market, questioning the assumption that tight labor automatically means high inflation. Government spending is raised as a possible continuing inflationary force. Housing Affordability, Frozen Resale Market, and Construction Strength (Priority: 5/5): The discussion contrasts weak existing-home affordability and scarce listings with strong construction hiring. They emphasize that housing is frozen rather than collapsing, and that the affordability shock has been severe and rapid. Demographics, Birth Rates, and Long-Term Growth (Priority: 3/5): They discuss falling U.S. births, rising deaths, and shrinking fertility rates, with a broader debate about whether lower population growth is a problem or whether productivity/technology can offset it. Consumer Spending, Travel, and Miscellaneous Culture Topics (Priority: 2/5): The hosts cover consumer resilience, lower-end spending pressure, egg prices, travel volumes, email etiquette, ticketing frustration, and pop-culture recommendations including Dave, Ted Lasso, Mario, Missing, and FUBAR.

Key Arguments: The 2022 bear market tied to inflation and aggressive Fed hikes appears to be over, but a new bull market is not fully confirmed until economic slowing fears are resolved. Mega-cap tech has become structurally dominant, and the index increasingly serves as a winner-picking mechanism for investors. Market timing into T-bills looked rational when cash yielded 4%-5%, but missing a sharp equity rebound shows how hard it is to re-enter after being wrong. Labor markets can remain tight without necessarily producing runaway inflation; historical periods in the 1990s and late 2010s showed low unemployment with low inflation. Government spending may be a more durable source of future inflation than labor-market tightness alone. The housing market is not uniformly weak; instead, resale inventory is frozen while construction activity and hiring remain strong. Consumer resilience is broad, though lower-income shoppers may be showing strain sooner than higher-income households. Demographic decline is real, but the hosts are skeptical that it is an existential economic problem because technology and productivity can offset some of the drag. Venture capital is highly momentum-driven and is now shifting capital from crypto toward AI. Social and cultural observations—travel, TV, food prices, ticketing fees—reflect a still-active, consumption-driven economy.

Data Points: S&P 500 total return since Powell’s first hike: Flat - The index is exactly flat on a total return basis since March 16, 2022, highlighting how much of the decline was rate-driven and later recovered. S&P 500 rebound from October lows: Up 21% - Used to argue the 2022 bear market may be over. Nasdaq 100 rebound from October lows: Up 36% - Shows the strength of the tech-led rally. Apple market cap peak: $2.97 trillion - They note Apple reached an all-time high in price but not quite in market cap because of buybacks and share count changes. Apple current market cap mentioned: $2.89 trillion - Comparison point in the discussion of the company’s size and buybacks. Big 7 tech firms vs. sectors: Apple, Microsoft, Google, Amazon, Nvidia, Facebook/Meta, Tesla larger than energy, materials, industrials, and financials combined - Illustrates the scale of mega-cap concentration. Nasdaq 100 concentration in top 10 holdings: 50% in 2015; 60% in 2023 - Shows increasing concentration over time. US births in 2022: 655,000 fewer births - Wall Street Journal chart on declining births. US births peak in 2007: 4.32 million - Benchmark for comparing the decline in births. Jobs added in 2021: Over 7 million - Shows strong rebound from pandemic losses. Jobs added in 2022: 4.8 million - Presented as a stronger labor market year than 2021 on a normalized basis. Jobs added in 2023 year-to-date at time of recording: 1.6 million - Indicates cooling but still positive job growth. Construction jobs added in May: 64,000 - Largest monthly increase since December 2021. Construction worker annual pay growth: 6.7% - Down from 7.1% previously, but still elevated. Tight labor market / participation: Prime-age labor force participation at a 10-year high - Used to challenge the idea that labor supply is weak. Consumer spending resilience quote context: Target, Walmart, TJ Maxx, Dollar Tree, and Gap all showed resilience or raised guidance - Cited to support the claim that consumers are still spending. Dollar General guidance: Double miss - Used as a sign that lower-income consumers may be under pressure. Costco recession signal: Shift from beef to poultry/pork - Costco CFO noted this shift historically appears during recessions. Egg prices: Fell after hitting record highs - Used as an example of price spikes that later normalize. Global VC capital raised for crypto firms: Nearly $22 billion in 2022; about $500 million this year - Shows the collapse in crypto funding as venture capital pivots to AI. AI unicorns: 13 already - Illustrates early-stage AI boom. Homebuyer housing payment: About $1,500/month in 2020 to $2,650/month in May 2023 - Demonstrates the affordability shock in housing. Mortgage payment as share of median household income: Chart shows a sharp rise from 2020 lows - Used to emphasize how quickly affordability worsened. TSA checkpoint volume: Breaking out again on a 5-day average - Evidence that travel remains robust. Ticket service fee: 25%-30% - Used to criticize the cost structure of ticket marketplaces. Super Mario Bros. Movie global gross: $1.3 billion - Mentioned as a massive hit and example of gaming-IP success.

Pivotal Quotes: "The bear market that was caused by interest rates and inflation, rest in peace." — Michael: He argues the rate-driven equity downturn has ended. "What if stocks did crash this year? It’s not like timing it if you’re right is any easier." — Ben: Used in the discussion of market timing and the difficulty of moving back into risk assets. "Why do even those people think like this is a bad thing that people are earning more money?" — Ben: A critique of the reflexive desire to cool the labor market to fight inflation.

Implications: Listeners should take away that the market regime has shifted: rate fears eased, mega-cap concentration is extreme, consumer demand remains sturdier than expected, and housing affordability is the clearest stress point. The episode suggests caution on simplistic recession narratives and on assuming labor tightness must equal inflation.