Bloomberg Surveillance TV: October 7th, 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 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 a.m. 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 app with stocks of record highs and yields still elevated. Alicia Levine of BNY Wealth writing, higher rates are a headwind, not a thesis breaker. Earnings can keep the bull market intact, but the rate cycle ensures the leadership will narrow and volatility will rise. Alicia joins us now for more. Alicia, good morning.

Alicia Levine (0:52)

Good morning.

Jonathan Ferro (0:53)

We've seen that since October. Is that the story we're starting to see?

Alicia Levine (0:55)

Oh, we've been seeing it really since Jackson Hole, when Warsh became unapologetically hawkish. He started to see the small caps underperform, the Mag-7 got their footing, became a floor under those charts, and the stocks that have carried this market really for 15 years, continued to get their mojo back after being more abundant as of November 1st last year. And so that's what we've seen. We've seen much narrow leadership. If you own the index, if you own the Qs or the SPI, you're okay, you're fine. You know, this has been the thesis, like by growth, because growth is what can get you through all kinds of rumblings in other parts of the market and in other asset classes, growth will always win. But you've seen it, so small caps are about 8% below the high. You see what's happening in the CCC spreads, right? So you're seeing the bank stocks, not because the banks aren't resilient, because on the margin, if you're having a flattening of a yield curve, because the expectations for a higher Fed funds rate, that's what's going to pressure that area as well. And you see it in the cyclicals, because cyclicals ultimately borrow, and so the marginal cost is higher.

Jonathan Ferro (2:08)

You've seen the doubt. The doubt is out there. People will speak to the deterioration of breath and say this can't continue. Price is going to catch down to breath. You see it differently?

Alicia Levine (2:15)

I see it differently. I think it can continue for a long time. I mean, it continued for years. If you think about the market in 2023, right, coming out of Silicon Valley, right, the crisis in Silicon Valley, what led this? Essentially, 10 stocks led this and there was hand wringing this can't continue and actually it did. And it continued as long as we had the manufacturing recovery in the US two, three years later.

And then we had a broadening out of what's happening in equities. And let's talk about the broadening out trade that we talked about for the last year or so. Yes, we had a broadening out. It was great being a stock picker. On the other hand, the index didn't really rocket higher because the capital came from the top of the market. So it really depends where you're invested, whether you think this is a great thing or this is a tragic thing. We happen to think it's a great thing because overall you're keeping the technicals fine on the S&P and ultimately that does matter for algo traders.

Lisa Abramowicz (3:06)

Has the AI trade broken down the correlation between stocks and bond yields that at a certain point bond yields have to torpedo some of the returns in stocks?

Alicia Levine (3:16)

So the correlation has been broken for a while and it's been broken really since 2023 when we came from a zero rate world, right? Very hard and in rate rising environment, which is what we're in for bonds to be the offset to stock volatility, okay? So you can have it on the margin, it works at times essentially. If you're looking for capital return and if you're looking for to go out longer in duration and we're having this conversation everywhere throughout the bank. Should you go out longer in duration here? You have to bet that the Fed is going to stop the hiking cycle and have to cut at some point because there's something worse in the economy, right? That's what you're betting on. You're betting on a more negative story in order to go out further in duration here. So we're in the short term to intermediate for our clients. It's been an okay place to be. It's a safer place to be.