Small Caps Are About to Have Their Moment | Jeff Weniger

Anthropic

Across the shows: 12 speakers in other episodes, 8 bullish and 30 bearish calls, past 30 days

• Jeff Weniger · Corgi InvestUncertain

  Mega-cap strength may partly reflect anticipation of Anthropic's IPO, which could support stocks into November.

  Weniger suggests the mega-cap leadership of September-October may reflect traders positioning for Anthropic's IPO. He says the run-up and excitement could support stocks through October into November, around mid-November if the timing holds. He is explicitly uncertain because the IPO's success is unknown. This is a conditional, speculative link rather than a firm call.

  “That might be in anticipation of the anthropic IPO. That could be something that's a little supportive that run up into an IPO... Well, we'll see if it's a successful IPO or not.”at 9:56

• Jeff Weniger · Corgi InvestNeutral

  Anthropic's roughly $2 trillion private valuation will most likely hold between bear $1T and bull $3T scenarios.

  Bears say Anthropic falls to $1 trillion and bulls say it rises to $3 trillion. Weniger thinks the most likely outcome is that it stays at about $2 trillion, the level where private markets price it now. He is not invested in it directly, though his fund has total return swaps on it. If the valuation stays flat, earnings growth from private mark-ups fades, which feeds into his earnings forecast.

  “Bears say, oh, down to 1,000,000,000,000. Bulls say up to 3,000,000,000,000. ... Between one, two, and three, that's probably the most likely scenario. The thing hangs out at 2,000,000,000,000.”at 49:22

Nike

Across the shows: 5 speakers in other episodes, 0 bullish and 3 bearish calls, past 30 days

• Jeff Weniger · Corgi InvestBearish

  Nike has gotten ahead of itself; fashion-driven apparel brands like it are risky at premium valuations.

  Weniger uses Nike as a case study in how fickle apparel is. He recalls Gap rising about 500% in the early 1990s and then falling out of favour, and Lululemon as another brand that seemed unstoppable before it fell. He argues that apparel is an area where you have to be very careful with premium valuations because trends turn quickly. He says Nike 'got a little bit ahead of itself,' and points to a wave of cushioned sneakers and ankle-support products from competitors. Nike is off roughly 60-80% from highs over five years. He doesn't put a time frame on the decline, though he says popular brands will be 'decidedly uncool' in five years.

  “My kids wanna wear Nikes. They want to wear Nikes, but I just think it got a little bit ahead of itself.”at 7:03

US Treasuries & yields

• Jeff Weniger · Corgi Invest

  Bond market yields are driving the stock market; a continued bond selloff would hurt utilities and REITs.

  Weniger argues the bond market is currently the decisive force for US stocks, not earnings or the index headline. Long-end yields are rising and he says there is some level on the 10-year or 30-year where stocks clearly sell off, though he doesn't know the number. If the bond selloff continues, he expects the rate-sensitive groups to be hit first, naming utilities and REITs. Utilities had traded as an AI-power beneficiary with the Mag Seven through 2025, but he notes they split from the mega-caps around March 31, when the Iran war started, and he links that split to rates.

  “I mean, the bond market is deciding everything for this stock market right now. If the bond market wants to keep selling off, then we got big problems in things like utilities, REITs.”at 11:11

• Jeff Weniger · Corgi Invest

  Long bonds look less unattractive if inflation holds near 3.4%, since real yields would be positive.

  Weniger looks at the long bond in real terms. With inflation at about 3.4%, the long-bond yield sits a couple of points above it, so the real yield is positive. He says that if inflation can stay around 3.4%, the long bond is 'suddenly not the worst prospect in the world'. He admits this depends on forecasting where inflation goes, so the view is conditional. He notes that long bonds have been hit hard this year, with TLT deeply negative.

  “If we're at 3.4 on moment in time inflation, you're a couple percentage points above that in real... But if it can hang out at 3.4, then suddenly that's not the worst prospect in the world.”at 32:22

• Jeff Weniger · Corgi Invest

  The 30-year yield near 5.6% makes bonds a real alternative to stocks, raising the opportunity cost of equities.

  The long bond sits around 5.63%, and Weniger notes it was about 5.45% a month earlier. Against an earnings yield of about 5.4% on the broad market (18.6 times earnings), bonds now offer competitive returns. Some investors will accept 5.63% for thirty years, so buying stocks now carries a real opportunity cost. He says this is far better than it used to be, even though everyone is a bond bear.

  “So there's a real opportunity cost to buying stocks here now now that suddenly bonds are competitive. ... [5.63] is a lot better than it used to be, frankly.”at 50:56

US stock market outlook

• Jeff Weniger · Corgi Invest

  US market breadth is deteriorating; index strength rests on a narrowing set of mega-cap leaders.

  Until early summer, roughly nine or 10 of the 11 GICS sectors in the S&P 500 were advancing. Since then, September and October have been weak and leadership has narrowed to the Mag Seven. Weniger treats that as a clear breadth breakdown under a headline index near highs. He argues the mega-caps are what hold the index up, and that when the 'generals' start to fall, the market is deteriorating. Individual stock pickers are feeling this pain even though much of the market hasn't noticed. He also thinks mega-cap buying may be partly anticipation of the Anthropic IPO.

  “Probably nine or 10 of them were in a state of advance. It's just that September and October action has been tough going. There has been this narrowing.”at 9:35

• Jeff Weniger · Corgi Invest

  Broad market is overvalued: about 1.1% dividend yield, with 10-year yields 400bp above it, last seen in 1998-99.

  Weniger's firm has long studied market valuation. A broad-market dividend yield of about 1.1% is 'horrendously bad' and signals overvaluation. Adding buyback yield gives a total shareholder yield in the mid-2s, which is still weak, though buybacks now exceed dividends more often than in past decades. Using a 10-year Treasury yield of about 5.25-5.35% over a 40-50 year series, the spread between the 10-year yield and the S&P dividend yield is about 400 basis points. The last time the gap was that wide was 1998-99, before the dot-com crash. The broad market trades at roughly 18.5 times forward earnings. Taylor offers a counterpoint: if AI spending earns 20% returns on equity, shareholders should prefer reinvestment to dividends, with many caveats.

  “One point o six or 1.1 is horrendous, horrendously bad and indicative of overvaluation.”at 53:38

US inflation

• Jeff Weniger · Corgi Invest

  US inflation is 'problematic'; ISM prices-paid readings near 74-78 signal persistent price pressure.

  Weniger says US inflation is not transitory, citing recent prints. He notes that CPI around 3.4% is not as extreme as the 1970s-80s but still a problem for policy. His main evidence is the ISM prices-paid subcomponents, which are at about 74-78 in both manufacturing and services. He says these diffusion indexes normally hover between 45 and 55, and readings below 40 or above 60 warrant close attention. Readings near 78 are at early-2021 levels. He calls this 'problematic inflation' that cannot easily be inflated away.

  “one of those two was at, like, first quarter of twenty twenty one levels was in the high 70.”at 18:50

• Tobias Carlisle · Acquirers Funds / The Acquirers Podcast

  Official CPI understates inflation; his own spending data show 10-15% annual increases for years.

  Carlisle checks his repeat purchases in a budgeting app and sees price increases far above the roughly 3% CPI figure. He puts them at around 10-15% year over year, for four or five years running. Cumulatively, he estimates prices have roughly doubled, though he says he didn't want to say 50%. He questions whether people believe the CPI figures.

  “Like, does anybody believe those CPI figures that they're that they're... Like, I can look at my repeat purchases in my budgeting app, and I can see how much everything is up. You know, it's nowhere near three.”at 1:00:37

Europe's economy

• Jeff Weniger · Corgi Invest

  France's fiscal deficit and OAT-Bund spread are the key European risk; planned cuts don't fix it.

  Weniger argues France matters more than Japan right now, since the French-German yield spread is nearing 150bp. That level matches or exceeds summer 2011, the eurozone-crisis period. He says France is running a deficit of about 5.6-5.8% of GDP this year and plans roughly €50bn of tax hikes and spending cuts. That would only bring the deficit to about 5%, which he calls 'still a very bad deficit'. He compares this to Greece, Spain and Italy in 2011, when the concern was contagion and a euro breakup. He also argues that a monetary union shouldn't carry a large spread between France and Germany, the way US states don't carry spreads against each other.

  “So France is gonna run something like a 5.6 or 5.8% budget deficit to GDP ratio this year... And five is still a very bad deficit. It's not like it's a good, oh, we balanced it. No.”at 32:56

• Jeff Weniger · Corgi Invest

  US rate hikes would push the ECB to tighten into French fiscal austerity; Eurozone is the bear-case risk for equities.

  Weniger argues central banks should coordinate, and that the Fed's hiking puts pressure on the ECB to hike too. He notes a high historical correlation between ECB moves and later Fed moves, and says markets only came to expect Fed hikes in the last 60 to 90 days. France is already in fiscal austerity, and many Eurozone members have violated the fiscal treaty for about 25 years. Tightening monetary policy into that fiscal contraction is the bear case. For investors who are bearish on equities, he says the Eurozone is the place to watch.

  “the more you're really putting the heat on the ECB to hike into a situation where there is already on the fiscal side... right now, we have fiscal austerity in France... People should be paying attention to Eurozone.”at 1:04:15

Earnings & corporate profits

• Jeff Weniger · Corgi Invest

  S&P 500 earnings growth is near 25-26% this year but may slow to about 10% next year without private AI gains.

  Weniger expects S&P 500 earnings growth of about 25-26% this year and another 15% next year if the Street is right. Much of this growth comes from mark-ups on private AI holdings such as Anthropic, which flow through the income statements of public companies. If Anthropic holds around $2 trillion rather than rising further, those gains stop repeating, and next year's growth could fall to about 10%. At roughly 18.5 times 2027 earnings, the market would then look less cheap on the same index level. He also flags a downside spiral: if Anthropic and OpenAI IPOs disappoint, private valuations and reported earnings could fall together, and the company's stock price could follow.

  “We're gonna have something like 25, 26% year over year earnings growth at the S and P 500 level this year, and then another 15 if the street has it right.”at 48:45

• Jake Taylor · Farnam Street Investments / The Acquirers Podcast

  US profit margins at 17% are unsustainable and partly inflated by private-stake write-ups and AI depreciation timing.

  Margins hit a record 13.3% in 2021, more than twice the long-run average of about 6%. They fell in 2022 and 2023 and have now risen to 17%, which Taylor calls mind-boggling. Roughly two percentage points of that come from write-ups of private holdings flowing through income statements, which he calls low-quality earnings. He adds that circularity inflates margins: one company's AI revenue, such as Nvidia's, is another company's depreciation expense spread over ten years, so future costs are already baked in. He suspects some profitability is being pulled forward. He argues margins cannot stay at these levels indefinitely.

  “But now we're at 17, which is absolutely mind boggling. ... I think it's a full two percentage points of that is from write ups of things flowing through the income statement.”at 57:32

US elections & politics

• Jeff Weniger · Corgi Invest

  Energy versus industrials relative performance may signal Senate odds ahead of the midterms; a speculative indicator.

  Weniger tests whether the S&P 500 energy sector relative to industrials correlates with Senate election odds. He suggests that if energy outperforms industrials over the next 30 days, Democratic odds could rise because oil and diesel prices are rising. If industrials outperform, Republicans might do better than expected, and a Republican win could favor deregulation and manufacturing. He's unsure whether this is a coincident or predictive indicator. He says that healthcare relative performance has shown no reliable link to party control.

  “if energy outperforms industrials in the next thirty days, well, then, yeah, of course, the democratic probability of the senate... It's because the oil price is going up.”at 21:05

Credit markets

• Jeff Weniger · Corgi Invest

  Credit is tame: junk spreads are narrow, but high rates could slow lending and the economic cycle.

  Weniger says credit conditions are tame. He points to Oracle as an investment-grade name that is a bit stretched, and says high-yield spreads look more like double-B than triple-B risk. He thinks people don't like to say it, but credit is fine. He is concerned that high rates could grind the economic cycle down and reduce banks' marginal willingness to lend, so credit is currently calm but rate-sensitive.

  “But you really do kind of have a tame credit situation. I know people don't really like to say that, but things aren't so bad from that perspective.”at 23:19

Market sentiment, positioning & volatility

• Jeff Weniger · Corgi Invest

  60/40 rebalancing out of stocks and fixed-income tax-loss selling could pressure equities into year-end.

  Stocks are up about 12% year to date while aggregate bonds are down. Weniger expects 60/40 investors to drift toward 64/36 and then rebalance by selling stocks and buying bonds, which could pressure equities. He also expects tax-loss selling in fixed income, since many portfolios hold loss-making bonds that can be sold for losses and swapped into similar products. He expects a busy November and December, and says he's still trying to gauge how big these effects are.

  “You might be by accident sixty four thirty six or something like that, and it's getting to that portfolio rebound time.”at 30:06

Venture capital & startups

• Jake Taylor · Farnam Street Investments / The Acquirers Podcast

  AI absorbs most venture dollars and winners keep winning; diligence is thinning as investors fear missing Anthropic.

  Record US startup fundraising in the first half of the year is concentrated. Four of every five venture dollars went to AI, and 9 of every 10 dollars raised by new funds went to firms already at the front. Rounds over $50M go mostly to brand-name VCs, who syndicate and tranche rounds so each group marks the company up a week later. Secondary liquidity is also concentrated: 20 companies made up 86% of trades. At seed, the 95th-percentile valuation was about $200M against a $29M median in the same quarter, roughly seven times apart. Taylor's friends at Edition Ventures observe that diligence is thinning because of fear of missing the next Anthropic, which outweighs founder quality, technical rigor and realistic outcome size.

  “There's a real perception now that diligence is thinning. There's a lot of fear of just missing the next anthropic, which outweighs, you know, measurements of maybe founder quality or technical rigor or realistic outcome size.”at 42:31

IPOs, M&A & deal activity

• Tobias Carlisle · Acquirers Funds / The Acquirers Podcast

  SpaceX, Anthropic and OpenAI IPOs together would exceed all prior IPO market cap combined, a historic supply shock.

  Adding up the market capitalizations of SpaceX, Anthropic and OpenAI at their IPOs gives roughly $5 trillion or more. Every IPO that has ever come public before them totals only about $3-4 trillion. In his framing, the coming listings would bring more equity supply than the past century of IPOs combined. Equity supply on that scale would absorb large amounts of capital from the existing market.

  “if you count SpaceX, Anthropic, and OpenAI in total market capitalization at the time of their IPO, it's something like five point something. ... you only get to, like, 3 or $4,000,000,000,000 worth of total market capitalization.”at 51:12

US jobs & labor market

• Jeff Weniger · Corgi Invest

  Wage growth is lagging inflation, opening a gap that fits a K-shaped economy and squeezed profit margins.

  Average hourly earnings grew about 3% year over year, below inflation of about 3.4%, which Weniger reads as a real-wage squeeze. The Atlanta Fed wage growth tracker shows about 4.1%, so the picture depends on which indicator you use. Using the 3.4% inflation and 3% wage figures, he says the gap rhymes with the K-shaped economy and with the strength of profit margins. Wage gains are going to a narrower group of earners.

  “you guys saw average hourly earnings disappointed down to 3% year over year the other day when that was released and inflation is, what, 3.4.”at 58:21

AI infrastructure & data centers

• Jeff Weniger · Corgi Invest

  Both parties are increasingly anti-data center; a Democratic midterm win could curb data center buildout and hurt tech.

  Weniger notes that Trump backs AI and wants to compete with China. Democrats and Republicans are both trying to one-up each other on being anti-data-center, and he sees the two as roughly equal. He sketches a scenario: a Republican midterm surprise would empower Trump's pro-AI stance and boost the AI trade, while a Democratic win would weaken Trump's power, forcing him to concede on data centers and hurting tech. He is not certain this line of reasoning holds, and Carlisle suggests cost-of-living pressures may dominate the midterms.

  “Whereas the rest of the constituencies between Republicans and Democrats both trying to one up each other on how anti data center they are.”at 59:43

US rates & the Fed

• Tobias Carlisle · Acquirers Funds / The Acquirers Podcast

  Under Warsh the Fed raised rates; markets price about 78% odds of another hike this year, squeezing borrowers.

  Trump had expected Warsh to cut rates, but Warsh raised them. Carlisle's rule of thumb is that the two-year Treasury yield is a good predictor of where the fed funds rate goes. The two-year was trading at a large premium to fed funds before the hike, and the market now prices roughly 78% odds of another raise before year-end. He expects this to squeeze people at some point, though so far the effect is mainly visible in the wider market. His example is a 7% mortgage rate, which is high but not historically high.

  “I was looking at the two year yield has been a pretty good predictor of where rates go, the federal funds rates go... he comes in and he and he raises, and there's like a 78% probability of another raise before the end of this year.”at 1:02:00