Will Higher Rates Kill the Stock Market? (EP. 484)

Michael Batnick · Ritholtz Wealth ManagementBullish

Bought long-duration Treasury ETF as a directional swing, though he expects to be run over.

Batnick says he bought the long-duration Treasury ETF TLT shortly before recording. He describes it as a directional bet on long duration in a market where the trend is clearly higher in yields. He expects to be run over, and says this is not a call that rates have topped. His rationale is thin and mostly a small swing trade rather than a conviction thesis.

“I did take a swing this morning on long, which I will probably get run over on. ... I did buy TLT thirty minutes before this podcast.”at 17:00

Michael Batnick · Ritholtz Wealth ManagementBearish

Alternative asset manager stocks are being destroyed as private credit fears build.

Batnick notes Carlyle traded at $70 a year ago and is now about $40. He says Blackstone and the rest of the alternative managers are similar, and that the basket is getting destroyed. He says the outflows continue because bad news has not yet arrived, and the media is waiting for a big default.

“Carlyle was at $70 last September. That's a year ago. It's now 40.”at 40:48

Ben Carlson · Ritholtz Wealth Management

The market is very concentrated, with most stocks lagging even as the index rises.

Using YCharts data, Carlson shows the S&P 500 is up about 13% year to date, yet only about 35% of stocks are outperforming the index and about 40% are down for the year. Around 20 stocks are up 100% or more. He concludes that more stocks are down than are beating the index in a double-digit up year, so the rally is driven by a small group of names.

“And there's, like, 20 stocks that are up a 100% or more. So this is a very concentrated market now.”at 7:15

Michael Batnick · Ritholtz Wealth Management

Selling may fade and stocks could rip into year-end, though he admits he could be wrong.

Batnick says the market, when it falls, generally falls fast, so the current drawn-out selling is unusual. Its sustained, grinding decline with no 1-2% down days resembles the April episode when markets did not fall as expected. He says he would not be surprised if this bout of selling underneath the indexes passes and stocks rally into year-end. He hedges heavily and says he could be dead wrong.

“I would not be surprised if we get past this bout of selling underneath the market, underneath the indexes”at 9:11

Michael Batnick · Ritholtz Wealth Management

Stocks likely sell off if the 10-year yield jumps to 5.6%, though the market shouldn't collapse otherwise.

Batnick says the market is not going to fall apart, but he caveats that with rates. If the 10-year yield reaches 5.6% next week, he doesn't see how the stock market avoids falling. He adds that bond holders want rates to stop rising, not for bonds' sake but for stocks.

“if the ten year is 5.6% next week, I don't see how the market doesn't crap.”at 41:23

Ben Carlson · Ritholtz Wealth Management

Rising rates are the excuse for stock sell-offs; a line in the sand exists if rates keep climbing.

Carlson agrees rates are the thing and that rising rates give the market its excuse to sell off. He says that if rates keep rising at the pace they have, stocks have to fall, and people will eventually dump stocks. He notes the 10-year rose from about 4% to 5.3% in the first nine months of the year, a move that would normally mean a down market rather than the up-15% he would have predicted. He doesn't know where the line is.

“If rates keep going up and the pace they've been going up, stock market has to go off.”at 58:13

Ben Carlson · Ritholtz Wealth Management

The US household backdrop is strong; the Fed-driven rates environment isn't yet hurting consumers.

Carlson cites a Cato Institute analysis showing the lowest income fifth has seen the largest inflation-adjusted income gains since 1990. He notes the share of households earning $150,000 or more, adjusted for inflation, has risen from about 5% in 1967 to almost 30%. Bank of America data shows household assets above 10 times liabilities in Q2 2026. He argues people underappreciate how much wealth and income have improved.

“Don't think we celebrate enough how much wealth that we've created and how much better incomes are than they were in the past.”at 21:45

Michael Batnick · Ritholtz Wealth Management

Stock gains are funding consumer spending through the wealth effect, especially for high earners.

Batnick cites a JPMorgan report that 8% of people withdrew money from investments on net from February to April 2026, versus 4% in 2019 and 2.4% in 2015. The share from the top income segment rose to 20%, and cash withdrawn from investment accounts as a share of spending for the top 10% is now above 10%, up from under 4% in 2015. He sees this as a flywheel in which stock market gains flow into the real economy. He calls the stock market a piggy bank for long-term investors.

“JPMorgan had a similar report this week titled More US Households Are Supporting Spending by drawing on investment wealth. So the flywheel of stocks... Stock market gains flowing into the real economy”at 22:19

Ben Carlson · Ritholtz Wealth Management

Investor withdrawals and spending gains may be mostly baby boomers retiring, not a wealth effect.

Carlson argues the JPMorgan data on investment withdrawals may be skewed by baby boomers retiring and drawing on their investment accounts. He notes that boomers in 2010 expected their home and stock portfolios to be badly damaged, while now nearly everything they own is up. He agrees the wealth effect is part of the story but thinks boomer retirement spending is a major driver of the trend.

“I think stats like this are gonna be skewed by baby boomers in the years ahead.”at 24:02

Michael Batnick · Ritholtz Wealth Management

Market has lots of doubt but almost no fear, so the selloff isn't yet a capitulation.

Batnick argues the market is in an unusual state: doubt is high but fear is low. The VIX is about 16 despite the selloff. Defensive staples and utilities, which investors usually hide in during fear, are at multi-year lows relative to the S&P 500, so nobody is hiding there. Retail and tech fund flows are at extremes, with Robinhood single-stock buying near its maximum and tech ETF flows at record levels, and Goldman's positioning indicator is deeply negative. He reads this as a market where everyone is bullish while the index sits near highs, but many individual stocks have fallen 10% or more.

“So it feels like that a little bit to me. I think that the way that I'm describing the current market environment is there's lot of doubt, but basically zero fear.”at 2:41

Ben Carlson · Ritholtz Wealth Management

Survey-based sentiment indicators are broken; investors should trust actual flows instead.

Carlson argues that sentiment indicators are unreliable because people's stated feelings do not match what they do. He prefers flow data, meaning what investors are actually buying and selling, over surveys. He does not fully rule out quantitative sentiment indicators. He also points out that retail traders, institutional investors and the Schwab investor are categorically different, so claims about what 'everyone' is doing are hard to make.

“Sentiment indicators are completely broken. You trust the flows, not the sentiment indicators. You can't ask people what they wanna do or what they feel.”at 12:23

Ben Carlson · Ritholtz Wealth Management

Rising yields should hurt stocks, but there are no rules, so the market may keep rising.

Carlson says that under basic finance, higher rates lower the present value of long-duration assets, so rising rates are a good reason for stocks to sell off. The 10-year yield went from about 4% to 5.2% quickly, and the market expects the Fed to hike toward 4.5-5%. Yet stocks are at highs. He explains this as AI capex and hyperscaler spending lifting earnings, plus strong growth, with the Atlanta Fed's GDPNow tracking about 5% for Q3. He notes the S&P 500 has risen strongly since 2020 even as yields climbed. He concludes there are no rules in the market and that rising rates are an obvious risk that the market is currently ignoring.

“I guess the one thing I said, rising rates are a very good reason for the stock market to sell off.”at 7:20

Ben Carlson · Ritholtz Wealth Management

Bonds are attractive at 5% yields, and they hedge stock risk if inflation and growth stall.

Carlson bought a bond ETF in his brokerage account while keeping his 401(k) in stocks. He is not trying to time rates. He likes the yield, noting 5% bond yields versus about 4% on T-bills, and says bonds offer a kicker if growth and inflation stall. He cites the Bloomberg Aggregate Bond Index, whose 5-year nominal return turned negative and whose 10-year real return is the worst on record since 1976. He blames low starting yields and a rapid rise in rates, and says higher yields now set up better future returns.

“But the thing is bonds give you the kicker if and when inflation and growth stall. If they stall out, bonds are gonna have a kicker.”at 18:11

Michael Batnick · Ritholtz Wealth Management

AI personal assistants will be adopted widely; he's already relying on one for daily tasks.

Batnick has used an agentic text-based assistant similar to Meta's Muse, called Instinct, for about three weeks. It handles scheduling, purchases, returns, billing comparisons, and crafting emails, and he says it does things for him rather than just advising. He cites a company growing rapidly and noting that after three weeks 40% of users share a personal credit card. He doesn't think everyone will need an assistant, but believes it will be adopted in a big way and says it is the first AI product he cannot stop talking about. He is wary of security and has not yet shared his own card.

“I'm very bullish on these things. It really is the first thing that I've felt in this AI thing that is like, I can't shut up about.”at 33:33

Michael Batnick · Ritholtz Wealth Management

Personal AI assistants are an incredibly bullish category; he would pay for one.

Batnick describes his AI assistant buying a wallet-tracking card after he lost his cards, then offering to monitor his credit card accounts for unusual activity. He sees this as the future arriving and is very bullish on the category. He is unsure which company wins and doubts how these services make money, but would pay around $5 a month.

“The future is here, and I am incredibly bullish on this category.”at 35:25

Ben Carlson · Ritholtz Wealth Management

Buyers won't keep overpaying for homes at 7.3% mortgage rates; the 2025-26 pattern is over.

Carlson says mortgage rates rose to about 7.3% last week. He argues buyers who overpaid in 2025 and 2026 can no longer afford to do so, since incomes have risen and the monthly math no longer works. He is looking for housing positives but finds none.

“That's over. I don't think people can afford to overpay anymore.”at 37:15

Ben Carlson · Ritholtz Wealth Management

Subsidising housing supply would beat subsidising first-time buyer demand, though he accepts the proposed match.

Carlson discusses a senator's proposal for a 5-to-1 federal match on first-time buyers' down-payment savings, up to $50,000. He says demand subsidies are the usual approach, while supply subsidies would be better. He says he is actually okay with the match, and would rather give first-time buyers 3% mortgages.

“I guess I would agree. It would be a lot better if we somehow subsidize supply.”at 39:15

Michael Batnick · Ritholtz Wealth Management

The AI trade has lost its valuation premium; AI-capex stocks now trade near historical averages.

Batnick cites a Duality Research basket of 81 AI-capex-exposed companies across 12 market segments. It trades at about 15 times EV/EBITDA, or 1.14 times its pre-2026 historical average. He takes this to mean there is no premium left in the AI trade. He uses NVIDIA at about 16 times forward earnings as the poster child. He treats this as evidence of doubt, not as a sign that AI stocks are cheap.

“A curated universe of 81 AI CapEx exposed companies spanning 12 market segments trades at an average EV to EBITDA, just think of it as like price to earnings, of 15 times, which is 1.14 times their pre 2026 historical average. So there's no premium in the AI trade anymore.”at 3:06

Ben Carlson · Ritholtz Wealth Management

Rent growth has fallen back to its pre-pandemic trend, which is good news for renters.

Carlson cites John Arnold's data showing national median rent at $13.90 as of August 2026, almost exactly where it would be had rent growth stayed on its pre-2020 trend of about 2% annualized since 2017. He says the 2021 rent spike has fully reversed since 2022. He argues slowing rent growth is clearly good news, because housing is the biggest expense for about 90% of households and renters are feeling it most.

“rent growth has completely fallen off, and it's back on the pre pandemic trend.”at 25:24

Ben Carlson · Ritholtz Wealth Management

AI agents helping consumers cancel unused subscriptions is hurting businesses like Planet Fitness and NYT.

Carlson says he plans to use AI to review and cancel subscriptions unused in the past 12 months, and that this is why Planet Fitness, the New York Times and similar businesses sold off. He is unsure what the consequences will be, such as businesses blocking agents or raising prices to offset cancellations.

“I don't know what the unintended consequences are gonna be of these businesses just blocking all these agents.”at 34:29

Ben Carlson · Ritholtz Wealth Management

Private credit redemption requests keep rising each quarter, with no sign of the outflows stopping.

Carlson cites Apollo capping a private credit fund after 15% of investors asked to exit, versus about 17% last quarter, in a roughly $26 billion fund. Morgan Stanley had a fund with 11% redemption requests. He says more people ask for their money every quarter, and investors are not willing to wait.

“So people get every quarter, more people keep coming back asking for their money.”at 40:30

Ben Carlson · Ritholtz Wealth Management

Spending on movies and video has structurally collapsed and will not recover.

Carlson shows charts from Joey Politano's piece on video spending as a share of consumer spending, covering movies, streaming, cable and theatre tickets. Theatre tickets dropped sharply in COVID and have not come back, and they had been falling for decades. Batnick agrees the decline is not coming back.

“The spending on this type of entertainment has fallen off of a cliff, you can see.”at 44:13