Software Alone Collapses, Indices at Highs: How to Navigate This 'Twisted Market'
In episode 228 of the US investment podcast 'The Compound and Friends,' titled 'Momentum Stock Slaughterhouse' (released February 6, 2026), the central discussion focused on the 'twist between the surface and the depths'—where indices look relatively solid while popular sectors are being sold off as if they were being 'executed'.
The guest is John Mowrey, CIO of NFJ Investment Group.Speaking from the perspective of managing assets as an affiliated boutique, he discusses the structural changes ('factor decay') that value investing has faced and 'what to buy' during the current momentum collapse phase.
1. 'Indices are calm, but the contents are a bloodbath' — What the dismantling beneath the surface indicates
What defined the atmosphere of the show was the sense of unease that 'the S&P 500 is at a high, yet panic selling is occurring in specific sectors and groups of stocks.' The hosts described it as looking more like 'margin-driven forced selling' than a simple correction.
What is striking is that the discussion turned toward the 'quality of the decline' rather than the decline itself.
Volume is surging, and it is not an orderly sell-off
The number of stocks dropping significantly in a single day is increasing simultaneously
And yet, the indices are not collapsing
This composition divides investor sentiment.
'Bullish, if anything, due to broadening health (capital is dispersed across 493 stocks)'
'The fact that the index is holding up while huge sectors are collapsing is a precursor to a delayed shock'
On the show, the guest expressed 'concern' while the hosts were 'bullish,' clashing head-on. This is the most 'delicious' part of this episode.
2. Why the 'winning pattern' of value no longer works: factor decay and ETFization
The core of what John Mowrey said is the view that since around 2008, classic value factors like 'low PBR,' 'low PER,' and 'high dividends' have become less directly linked to excess returns than before. He calls this 'factor decay' and cites the spread of ETFs and smart beta as the background.
The phrasing on the show was provocative.
'Diversification factors that were once 'alpha' have become 'beta' due to ETFs'
In short, the act of 'buying undervalued stocks' itself has been commoditized, and as a result of popularity, the 'flavor' of being undervalued has thinned. Furthermore, it was pointed out as a pain point that new types of companies (high growth, high gross margin) that continue to grow at the top of the index have emerged, and value management had been 'excluding them by creating reasons not to look'.
What is important here is that he is not saying 'value is dead.' What is dead is the 'era where you could win with the same yardstick,' and value investing 'must rebuild its yardstick.'
3. Seeing through 'comparison' rather than 'classification': The prescription of custom peer groups
The prescription Mowrey presented was the idea of creating one's own peer groups. Instead of mechanically comparing according to GICS sector classifications, reclassify based on the 'competitive axes and demand axes' that investors actually see as being on the same level, and judge the positioning of valuations.
The examples in the program are easy to understand.
Within the chemical sector, Sherwin-Williams has characteristics closer to 'home improvement' than 'commodity chemicals'
Even though they are in different industries, the market applies the same 'yardstick' to Union Pacific and Prologis due to their connection in logistics and storage
The advantage of this perspective is that it goes beyond 'buying because it's cheap' to consider:
Why is it cheap? (is it destined to be structurally discounted?)
How far can it recover? (is it a distribution prone to mean reversion?)
—allowing for a more realistic assessment.
4. 'AI is breaking the market twice' — The simultaneous collapse of software and the surge in staples
The stimulating part of this episode was that the changes brought about by AI were described not as 'winner-takes-all,' but as a 'double destruction.'
AI winners (major AI-related stocks) are being sold off (the term 'anti-bubble' was also used in the program)
Those being replaced by AI (traditional software) are being sold off even further
And what was suggested as a destination for fleeing capital were 'areas that are hard to disrupt.' A blunt but piercing remark made by the host was symbolic:
'You can't disrupt mac and cheese'
However, Mowrey was cautious about consumer staples as a safe haven. The reason is clear: there is a possibility that 'multiples (P/E ratios) are rising due to fear, not fundamentals.' Here, the discussion deepens. 'Disruption resistance' is attractive, but ignoring price creates a different risk (excessive P/E).
5. 'What should we buy?' — The 'next leading candidates' they mentioned and points of caution
When the program discussed 'What to buy,' the answer was not a single stock, but a conditional sector theory. There are two key points.
5-1. The long-lasting 'value wave' can only emerge from 'large areas' after all
Mowrey states, 'If value is coming, it's hard to make a case without including financials (especially banks).' This is the reality of the ETF era, as capital needs large vessels with significant index weight to move effectively.
5-2. Focus not on 'cheap,' but on 'cheapness that is earning'
What he repeated was:
low valuation
The premise is that 'long-legged growth' is born where there is backing such as profit growth.
In the program, energy (especially refining), banks, and materials were cited as examples.
On the other hand, the difficulty of bottom-fishing is also discussed frankly. In particular, the judgment of 'what will be destroyed by AI vs. what will not' is not the type of thing that is decided suddenly one day. To borrow the host's words,
'For biotech, there is an FDA date. But this theme has no 'resolution date'.'
In other words, the decline in software is not 'waiting for an event,' but could be prolonged by multiple rerating.
6. Crypto Assets/Gold: ETF conversion creates 'correlation' and makes price determination difficult
The points about crypto assets touched upon in the second half were close to the actual experience of investors.
Once called 'uncorrelated,' but incorporated into the market's 'casino' through ETF conversion
'Flow' (capital inflow) has a significant impact on price
What is even more interesting is that they did not dismiss it by saying 'no cash flow equals no value.' Rather, it is closer to the conclusion that
'The harder an asset is to price, the more it swings with fear and mania.'
This leaves the implication that position sizing and expected value design are therefore important.
Conclusion: The 'useful' perspective this episode provided
If I were to compress the lessons of Episode 228 into three practical lines, it would be this:
Don't just look at the index: The market's true intentions appear in the 'underwater dismantling'.
Rebuild your value yardstick: In the ETF era, 'peer groups' are more of a weapon than 'factors'.
'Disruption resistance' is not a panacea: The more a stock becomes a safe asset, the more there are different traps in its price (PER).
Finally, if I were to express the atmosphere of the program most succinctly, it is this:
'People aren't looking for explanations. They just want a ticker.'
But what really works is not the ticker, but an editable thinking framework of 'how to compare, where to verify, and on what basis to hold.' Episode 228 showed how to build that framework (mixed with casual conversation) quite well.
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