Trade Ideas
Software stocks are crashing despite decent earnings (e.g., Workday down significantly). Valuations are compressing from ~10x sales to ~4x sales. Josh notes, "Software is having its worst month since 2008." Investors fear AI will destroy software margins (deflationary pressure). If margins compress by 50%, multiples must compress by 50% to maintain fair value. The market is pricing in a structural regime change where SaaS is no longer a safe compounder. Avoid or Short Legacy SaaS/Software. The "Software is eating the world" thesis is dead. Oversold bounce; Adam Parker notes that "expensive" software stocks often outperform "cheap" ones after a crash.
Josh observes that while the S&P 500 is flat, "Halo" sectors (Energy, Materials, Industrials, Staples, Utilities) are significantly outperforming. He notes oil majors like OXY, XOM, and CVX are re-rating higher (e.g., XOM PE went from 14 to 22). AI introduces "obsolescence risk" to asset-light tech companies. Conversely, physical industries ("Heavy Assets") cannot be easily disrupted by LLMs. Capital is fleeing uncertainty in tech for the safety of tangible economy stocks. Long the "Halo" trade—sectors with physical moats and low AI disruption risk. A sudden deflationary bust or recession could hurt cyclical heavy industries (Energy/Materials).
Pool Corp (POOL) and Floor & Decor (FND) are "murdered" in the market. Pool builds are down 50% since the pandemic peak. Pending home sales are diverging negatively from seasonal trends. The "COVID pull-forward" demand has evaporated. High rates have frozen the housing market ("lock-in effect"), meaning fewer moves and fewer renovations. Short/Avoid housing-related consumer discretionary stocks that benefited from the pandemic boom. The Fed cuts rates aggressively, unlocking housing inventory and demand.
Alternative asset managers are in 30-40% drawdowns (e.g., Blackstone down 42% from highs). Sentiment is at rock bottom due to fears over private credit valuations and "hidden cockroaches." Michael argues these are "illustrious" firms with massive staying power (Blackstone is the "BlackRock of Private Equity"). The market is pricing in a 2008-style collapse, but actual distress is not yet visible in the data. He views this as a sentiment disconnect. Long the top-tier Alternative Managers as a contrarian value play. (Michael explicitly bought BX and owns CG). Actual systemic credit events or fraud (like the "cockroaches" Jamie Dimon warned about) could validate the sell-off.
Citing Adam Parker's research: In the last 20 years, following software valuation corrections, buying the *most expensive* software stocks outperformed buying the cheapest ones. Cheap software stocks (like Salesforce) are cheap for a reason (growth slowing). Expensive ones (like Palo Alto Networks) have premiums because they still have growth/momentum. If you must buy software, buy the high-flyers, not the value traps. Long high-growth/expensive software relative to cheap software peers. Broad sector beta drags down even the best names.
Since October 2022, Emerging Markets (excluding China/specific drags) have actually outperformed the S&P 500, which has stalled out recently. Valuations in the US are compressing (PE compression), while international markets are "red-hot on fire." The earnings benefits are accruing to non-US markets while US tech struggles with high expectations. Long Emerging Markets/International Equities as a diversification play against US stagnation. A strong US Dollar or global recession could hurt EM assets.
This The Compound News video, published February 24, 2026,
features Josh Brown, Michael Batnick
discussing WDAY, CRM, CRWD, TOST, IGV, XLE, XLB, XLP, XLU, XLI, OXY, XOM, CVX, POOL, FND, APO, KKR, BX, CG, ARES, PANW, EEM.
6 trade ideas extracted by AI with direction and confidence scoring.
Speakers:
Josh Brown,
Michael Batnick
· Tickers:
WDAY,
CRM,
CRWD,
TOST,
IGV,
XLE,
XLB,
XLP,
XLU,
XLI,
OXY,
XOM,
CVX,
POOL,
FND,
APO,
KKR,
BX,
CG,
ARES,
PANW,
EEM
