AI Summary
5 min read“If you can get big ideas right over a cycle, they can offset the average over a longer period of time.” That is the core philosophy Dan Skelly brought to his conversation on The Compound and Friends, and it captures how he navigates markets from his seat at Morgan Stanley. Skelly, a portfolio manager overseeing equity model portfolios and a member of the firm’s Global Investment Committee, has spent his entire 21-year career at the firm, watching its wealth management business grow from 8% of revenues to roughly 60%. In this conversation, he dissects the current market environment, the AI spending supercycle, and the crucial difference between cyclical and secular investing.
The Economy Is Resilient, But Not Because of What You Think
Skelly argues that the economy has “paradigm shifted away from cyclicals,” making the current cycle highly non-typical. The resilience, he says, comes from a few underappreciated sources. First, many companies retained pricing power after the tariff-driven inflation of recent years. As Skelly puts it, using a personal anecdote about his landscaper: “When he had to take up price 15 to 20% because of cost… he never took it back.” This “synthetic operating leverage” is showing up in earnings, with the S&P 500 posting 28% year-over-year earnings growth in the second quarter and the median company delivering 14% growth.
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What you'll learn
- 1 (00:04) **Dan Skelly's Background & Morgan Stanley's Evolution** - Dan describes his 21-year career at Morgan Stanley and the firm's shift from institutional to wealth management.
- 2 (08:46) **The Push-Pull of Negative News vs. Rising Markets** - Dan explains how investors can reconcile a constant stream of bad headlines with a market that keeps going up.
- 3 (11:51) **The Resilient Economy and "Synthetic" Earnings Tailwinds** - Dan breaks down why the economy and corporate earnings have been so surprisingly strong.
- 4 (18:37) **Beyond AI: Reshoring and Demographic Shifts** - The conversation expands to other structural forces shaping the economy.
- 5 (20:15) **The Wall of Worry & The Healthy Rotation** - Dan explains why the current market dynamic is healthier than a runaway rally.
- 6 (22:03) **The Tricky Case for Small Caps** - Dan gives a nuanced, cautious view on small-cap stocks despite the recent rotation.
- 7 (26:30) **The AI CapEx Debate: Bubble or Secular Trend?** - Dan and the hosts debate the sustainability of massive capital spending by the hyperscalers.
+ Full timestamped outline available in the app
Show Notes
On episode 258 of The Compound and Friends, Downtown Josh Brown and Michael Batnick are joined by Dan Skelly, Portfolio Manager at Morgan Stanley Wealth Management, to discuss the resilient U.S. economy, record earnings growth, the AI spending boom, Nvidia and Broadcom, whether today’s data center buildout looks anything like the dot-com bubble, the rotation out of semiconductors, the return of healthcare and financials, risks facing small-cap stocks, why the Mag 7 could lead again in 2027, AI’s impact on corporate productivity and profit margins, the strength of the American consumer, stock-picking in an increasingly efficient market, and much more!
This episode is sponsored by Vanguard and Federated Hermes.
- Learn more about Vanguard bonds at https://vanguard.com/audio.
- Explore the full ETF lineup at https://federatedhermes.com/
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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 Josh Brown 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.
The Compound Media, Incorporated, an affiliate of Ritholtz Wealth Management
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