Bloomberg Surveillance TV: October 13th, 2026

Lisa Abramowicz (0:02)

Bloomberg Audio Studios.

Sarah Kunst (0:04)

Podcasts, radio, news.

Jonathan Ferro (0:11)

This is the Bloomberg Surveillance podcast. I'm Jonathan Ferro, along with Lisa Abramowicz and Annmarie Hordern. Join us each day for insight from the best in markets, economics and geopolitics. From our global headquarters in New York City, we are live on Bloomberg Television weekday mornings from 6 to 9 AM Eastern.

Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always on the Bloomberg Terminal and the Bloomberg Business app. We begin this out with stocks mixed as the bank set the tone for earning season. Mike Wilson of Morgan Stanley writing, look to financials relative performance and bond volatility for signs the worst is over. Mike joins us now for more. Mike, good morning. Good to see you.

Mike Wilson (0:49)

Good morning.

Jonathan Ferro (0:50)

Are you seeing signs the worst is over?

Mike Wilson (0:51)

Yeah, well, we've seen the breath. I mean, everybody's talked about this now, but I want to go back to June. That's really when this correction started, I would say, in the broader equity complex, and it was an internal correction at first. We called it the transition to mid-cycle. Some of the early-cycle stocks have really been hammered, like semiconductors, which now are having a second-leg lower. Financials is another early-cycle group.

So the market's on to this. I mean, it understands that financial conditions have really been tightening quite significantly, and the weaker parts of the market have underperformed. So I like that. I mean, by the way, the market understands all this, so it's digesting. The question that we don't know the answer to yet is, do we need a final kind of catch down in the S&P 500 to kind of finish this correction? And I would say it's sort of 50-50, but that would be something we would really embrace, because we don't see any issues with growth.

Jonathan Ferro (1:38)

What would suggest that we need that final catch down?

Mike Wilson (1:40)

Well, as we wrote in our note this week, I mean, the two things I'm really focused on, I'm focused on a lot of things, but those are two that stick out to me, is financials relative performance, because that's a leading indicator, and then bond volatility, because equity vol really has been suppressed, hasn't really caught up. So maybe we just need bond or equity vol to catch up to where bond volatility has been. And then that's your final sort of clean out. I mean, I'm a trader by trade, right? So I mean, this is how I look at the markets. I'm probably different than some strategist. I'm kind of in the weeds on this.

And so I like what I see. I like that set up. But I'm not convinced that it's time to really just come in with a big hand and say, okay, everything's clear.

Jonathan Ferro (2:14)

I'm picking up on a couple of words you used. Four, markets are digesting this. Some people might say markets haven't been digesting what's happening in the bond market. You push back against that beneath the surface. Where do you see that process going on?

Mike Wilson (2:26)

Well, I mean, small cap stocks, low-quality stocks, which has been our call since June. The early cycle groups have really underperformed. Even when the AI complex, I think this is healthy. We've gone from the enablers outperforming to more of the adopters, and we are seeing that in our work.

The companies are now using this technology to expand margins. That to me is encouraging. That doesn't mean we're not going to have bumps along the way.

Most recently, we've had more concerns about AI safety or some of the Nibbism concerns around the election. And let's not forget, we still have the midterm election in three weeks. And there's all this anxiety around that. And markets tend to get the most anxious before the results. So I actually view the midterm elections, no matter who wins or what the outcome is, as a clearing event, so the market can kind of look forward.

Lisa Abramowicz (3:09)

You don't think it's a catalyst for more potential policy volatility?

Mike Wilson (3:12)

I don't, because I don't think that there's gonna be that big of a sweep where any real policy changes occur.

Lisa Abramowicz (3:18)

I'm talking about the executive branch, not Congress.

Mike Wilson (3:20)

Well, I mean, that's definitely not gonna happen, and that's the thing. But even if the Democrats were to sweep Congress on both houses, I mean, Trump has veto power. And so it's gonna be really hard to change policy in the short term.