S&P 500 Edges Closer to Record, Shrugging Off Bond & Oil Risks

Ed Harrison (0:02)

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SPEAKER_2 (0:08)

This is Bloomberg Businessweek Daily, reporting from the magazine that helps global leaders stay ahead. With insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Businessweek Daily Podcast with Carol Massar and Tim Stenovec.

Carol Massar (0:32)

So, Aurali and Giant Tech companies, we've been talking about that, overshadowing a lot of concerns that, to be fair, have been out there, whether it's higher bond yields, whether it's elevated oil prices, whether it's geopolitics, whether it's concerns about the AI spend. I mean-

Tim Stenovec (0:45)

The list goes on.

Carol Massar (0:46)

And some days the market is okay with it, some days the market- We're not feeling it. Doesn't like it, right? It's not feeling it. We've also got some renewed political upheaval in Europe and concern over public finances that did send the euro to its weakest since May of 2025 So once again, we've seen the dollar as a safe haven. That's happening on- Should we get to Ed Harrison? Let's do it. Edward Harrison, he's senior strategist. He is the author of the Everything Risk newsletter at Bloomberg News. He is there in Washington DC. Ed, gosh, where to begin?

I feel like today, I keep saying this, that unless you're in France, if you're a US-based investor, you feel like everything is awesome in the US. The US is back on, at least for today.

Ed Harrison (1:33)

It does seem that way, Carol.

The NASDAQ is looking like it's going to have a new all-time high, even despite the fact that yields across the curve are going up, particularly at the long end. My view is that we're in a boom, and that boom is so great, that equities can do well even despite the fact that we have yields going up.

Tim Stenovec (2:02)

Ed, you've been writing a lot about when yields get to 6 percent. Right now, at least with the benchmark 10-year today, we're not at that 6 percent. But we're already at more than 5 percent on the 10-year. So what starts to break if we keep moving higher?

Ed Harrison (2:17)

Yeah. So I'm looking at all of the things that potentially could break the market, that could slow down the economy. Basically, it's about the Federal Reserve getting on a rate-hiking train to stop an overheating market. Basically, what we have is we have AI and we also have 6 percent deficits.

Those two forces are so great that it's adding a huge spend. It's adding a lot of earnings, equity to stocks. As a result of that, unless you get a rate-hike train, you're going to see yields go higher, but without a negative impact on equities. I think that the numbers that I'm looking for are 2.5 percent on long-term inflation expectations. I'm talking about the break-even between tips and treasuries. When we get to 2.5 percent on the 10-year, that's high enough that beyond the 2 percent, a target that the Fed has to cause them to get into the hiking mode.

Carol Massar (3:31)

I always wonder when there is some enthusiasm back or there is this feel of American exceptionalism. What are we missing? Because I feel like there's a laundry list ahead. Especially when I even think about the story out in France, worries about their fiscal house. The US has its concerns too, especially if growth starts to slow, if earnings aren't there, if we continue to limit immigration, that keeps a lid on economic growth. You can't expand the labor pool. There are a lot of things you could point to.

Ed Harrison (4:04)

Well, you know, it's interesting you mentioned that right before I got onto the program, I was looking at the employment report that came out on Friday. And the interesting bit is if you look at the last two months and you compare it to last year, what you see is civilian labor force that declined actually between September of last year and September of this year.

And you also see an employment number that's lower in terms of the household survey. But the interesting bit is that's because of exactly what you were talking about, Carol, in terms of immigration. It's also in terms of retirement. But over the last two or three months, we've seen a steady tick up in the labor force participation rate. We've seen in the household survey a huge number of jobs that aren't reflected in the non-farm payrolls. So what we're basically seeing is a tighter labor market than the numbers would imply.

And that's helping consumers continue to spend. So it's actually a relatively positive picture for the US right now.