Bloomberg Surveillance TV: October 16th, 2026

SPEAKER_1 (0:02)

Bloomberg Audio Studios, Podcasts, Radio, News.

Jonathan Ferro (0:11)

This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferro, along with Lisa Abramowitz 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 hour with stocks fighting their footing. Keith Lerner of Truist writing, investors love hate relationship with tech continues. We remain long term balls, but this tech reset likely has further to go. Keith joins us now for more. Keith, welcome. Where in the equity market do you see further downside from here?

Keith Lerner (0:52)

Well, great to be with you. I guess it depends on when we talk about the equity market, as you mentioned, which equity market, because right now we're seeing the average stock move up, and we're seeing this rotation from tech. Just an interesting start for you all.

Last month, there were only two sectors up in the S&P, tech and communication services. When the S&P made a new all-time high, there was only one sector that was up, that made a new high, which was tech. So what are we seeing this month? Ten out of 11 sectors are up, and one sector is down, that one sector is tech. So that's going back to this love hate relationship. We're on this bull market that started in 2022, late 2022

Tech has more than doubled the S&P, but it's had five double-digit pullbacks during that time, as these kind of concerns come and go. So I think tech is still the primary driver of this market over time. I think it's going to take a further rest. And in the meantime, it's anything but tech is working. I think we like healthcare. I think small caps are likely to have a bounce here. I think the ecoweight index is likely to have a bounce. But I think it's a bounce over weeks, maybe a month or two. But I think money eventually will come back to tech in our view.

Jonathan Ferro (1:59)

Is that a bet on small caps or a bet on bonds?

Keith Lerner (2:02)

A little bit of both. I mean, think about this.

Going back to what I said, last month, everyone was talking about how bad the breath was of the market. The only thing that was performing was tech. So you had a really healthy reset. Most of the ecoweight index, a lot of financials, industrials were down 5% to 10% while tech was holding up. You have an oversold market beneath the surface. You had a reset in valuations, a reset in prices. And now you're seeing that rotation into other areas that were beat up. So it's almost, the way I think about it is, tech was the last man standing or woman standing. And so we're bringing the leaders down and this rotation is allowing other areas to kind of bounce here. And those rates moving down, as you mentioned, helped out. It's interesting, a few years ago, people thought as interest rates moved higher, that was bad for tech. But what we have seen is if you overlaid tech's relative price with the 10 year, it was outperforming more as rates were moving higher because people were looking at that as macro headwinds on the 10 year. So now as rates have kind of pulled back a little bit, these other areas that have been pummeled, including small caps, are now getting a bit of a relief. So again, I think that continues. But ultimately, if this bull market is intact, which is our view, we think money eventually does rotate into tech. I think it's due for a rest after a 20% gain and really just outperforming by a wide margin the rest of the market.

Jonathan Ferro (3:26)

Yeah, Keith, just on that relationship, I've made the argument that tech's leading rates, rates isn't leading tech. Tech's been pushing rates higher because of the capex build out that's fueled much, much hotter nominal GDP in this country. What's curious to me for this week is that we started to see some yield curve flattening come back into the market at the same time we started to see wider credit spreads as well. From my vantage point, that's the market starting to think about the consequences, the negative consequences of a hiking cycle over at the Federal Reserve. How are you thinking about that with regards to the capex build out in the tech sector?