Bloomberg Surveillance TV: September 9th, 2026

SPEAKER_1 (0:02)

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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.

Mike Wilson of Morgan Stanley writing, higher oil and rates remain the main risk to equities in the near term. Mike joins us now for more. Mike, good morning. Morning. It's good to see you. Look, we've dealt with this now for seven months. We've dealt with it okay. Equities have been up and to the right. Does that change?

Mike Wilson (0:49)

It's a wall of worry. You know, I mean, like this is our call for the whole year, which is that earnings are going to be better than people expected. It was even better than we thought, quite frankly. And we've been derating all year. So, it's not as if the market is ignoring all of these risks. It's just been digesting it in a way where it's not as obvious to the casual observer, hey, the S&P hasn't really corrected. Well, it has corrected in price, in price earnings multiples. And then the averages go up because of earnings. So, the broadening out story, I think we were the first ones to talk about that. And to me, that's really the story. It's this transition now. We're going from an early cycle recovery from the recession of a year ago.

We had all the rotation now to the mid-cycle areas, the quality rotation. That's very typical. So, I don't really see anything that's troubling to say there's some end of cycle calamity that's going on here. The market's dealing with all these risks. But we do worry a little bit in the short term about oil prices. And what Annmarie was talking about is what's really important here. It's not about the price of oil. It's about the price of product.

We don't consume oil. We consume gasoline. We consume diesel. We consume heating oil. And those prices are really, really high. The crack spreads on these products are as high as they've ever been.

So even if there's no more kinetic energy in this war, that spread has to narrow. And the question is, is that narrow from product prices coming down or from oil prices going up? And it looks to me like it's going to be oil prices going up because there's no demand destruction. So you need demand destruction for that product to come down. So that's the risk in the near term. I don't think it's insurmountable. I think it's another hurdle that we can get over. But it's probably the next 30 or 40 days where we're going to have to deal with this.

Jonathan Ferro (2:16)

Does it influence your sector exposure? The kind of sectors you want to be in, the kind of sectors you don't want to be in?

Mike Wilson (2:20)

Well, we've used energy as a hedge, right? So energy has had a great year this year. And I think you should continue to own energy stocks as a hedge in your portfolio, because we like the quality parts of the market. So that's more of a not a sector call, but a factor call. Free cash flow, quality factors have really been working since the beginning of June and fading some of these early cycle lower quality areas. And then owning some energy on the other side is your hedge against oil prices going up.

Tom Keene (2:43)

So when would you know to get back in but the second energy comes down and we're in it?

Mike Wilson (2:48)

We're not. We're rotating as opposed to reducing our overall equity exposure. I don't think people should be reducing their equity exposure. What they should be doing is upgrading the portfolio, which is what we've been doing, which is the S&P over foreign markets. It's quality stocks over lower quality stocks that are more vulnerable to a rise in rates, a rise in oil prices, and then having some hedges like oil, maybe being underweight duration still within fixed income. I think that's probably a good place to be.

And then, you know, gold and crypto are probably good hedges against inflation getting out of bounds.

Tom Keene (3:15)

Because the United States is so much of a bigger energy producer and less vulnerable, say, to Europe and countries like Japan, do you want to double down here?