Bloomberg Surveillance TV: October 7th, 2026

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This is the Bloomberg Surveillance Podcast. I'm Jonathan Farrow, along with Lisa Abramowitz and Anne-Marie 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 Hour. We begin this out with stocks at 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 that leadership will narrow and volatility will rise. Alicia joins us now for more. Alicia, good morning.

Good morning.

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

Oh, we've been seeing it really since Jackson Hole, when Walsh became unapologetically hawkish. You 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 have continued to get their mojo back after being sort of moribund 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 SPY, you're okay.

You're fine.

You know, this has been the thesis, like, buy 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 triple.

C spreads, right? So you're seeing- Bank stocks.

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 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.

You've seen the doubt. The doubt is out there. People will speak to the deterioration in breadth and say this can't continue. Price has got to catch down to breadth. You see it differently? I see it differently.

I think it continued 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 U.S.

Two or 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.

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?

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 gonna stop the hiking cycle and have to cut at some point because there's something worse in the economy. 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. Ultimately, the competition for capital, the boom that we're in, nominal growth at 6.3%. It's not a place where you really want to experiment going all the way out on duration here because there's pressure.

There's pressure on the long end.

What I'm getting at is, at what point do bonds present a competitive alternative to stocks?

On the number.

On the number. Yeah.

I mean, I think we're close to it. I think we can easily see yields getting to 5.5% here. That would be part of the normalization cycle in an economy that's growing 2.5% with 2.5% to 3% with inflation at 3%. That feels about right. And I think at that point, it becomes competition. On the other hand, as the conversation we've had, the ease with which these larger companies can borrow suggests that investors really feel more comfortable giving capital to some of these hyperscalers and cash-flowing machines with visions of where the business is going, perhaps, than to the sovereigns out there.

And that's true, too. And that is competition for capital. You see a risk with the midterm elections.

Explain.

So I'd say this. To the extent that, what's at the heart of this, right? It's the rapidity of the AI build-out. It's the CapEx spend. That CapEx spend is funding the earnings of the S & P. So it's like one goodness circle. It's a glorious circle. So how do you break that? You break that in a couple of ways. Is there no ROI on the spending? But it looks like there's starting to be ROI, which is why we had another leg higher in the tech stocks.

you know, starting in August with the quarterly earnings season.

That looks to be okay.

I think what stops it really is the slowdown in the data center build-out. And that's political, and it's political across the spectrum. I think it's less whether Congress flips and more whether the governor's race is where you see, you know, could it be Texas? Can it be, you know, the states that you wouldn't expect to flip? If those flip, then running on slowing down the data center buildup will be an issue in 2028. And that's really, that's where you could have a rumbling in the market. So the market's not pricing it in yet.

You see it a little bit.

It's a concern.

That's really the issue.

Do you think.

Potentially that could be healthy for the trade, for the build-out? Well, that's the strange thing.

And we just had a conversation at BAY yesterday about this. The weird thing is that if you slow it down a little bit, you prevent the concerns of a bubble, right? Because then it becomes a little bit harder to raise the capital. There's more concern over it. And so if you slow it down a little bit... That actually helps the longevity of the trade, and you don't get this bubblicious feeling in markets or bond market.

Or it's all going to be great.

The slowdown is not necessarily a bad thing. It will affect the earnings growth, and that we have to focus on. What does that look like to us? That looks like a correction, which will be eminently viable because we don't see a recession here. We think the economy is really strong.

Stay with us. More Bloomberg surveillance coming up after this. SpaceX seeking $ 40 billion to buy NVIDIA chips, setting the stage for what could be one of the biggest debt financing deals for the AI build-out, the Financial Times reporting Apollo. is leading the deal and is expected to close in the next year.

Yeah, with $ 30 billion of investment-grade debt and about $ 10 billion of bank loan debt. And SpaceX shares are falling in the pre-market as a result of this, as you were noting. Nonetheless, people are saying that they will be able to raise it. And ultimately, it will fuel some of the monetization because SpaceX will have the capacity to lend some of their services out to the myriad players, frontier models among them, who need the capacity.

We mentioned Apollo playing a major part in the growing trend of private credit firms funding the AI build-out, deploying upwards of $ 20 billion in the third quarter alone. Apollo's Olivia Awosena writing, we are in all the above investment cycle across energy, infrastructure, and the broader industrial economy. Past investment cycles tell us that underinvestment is an underappreciated risk.

Olivia joins us now for more. Olivia Glimonick.

Good morning. Thanks for having me back.

I'm sure you don't want to confirm or deny what might be in the news around a certain space exploration company this morning, but the amount of money that some of these companies are raising, is the demand out there for it?

It is, for sure.

I look at what we've done in the last quarter. You quoted our $ 20 billion number. That's been partnering with investment-grade companies like Enbridge, like Williams. It's been investing in businesses like PGI, which is a gas processing platform in Western Canada.

It has become a large part of our business.

There's the AI story, but there's also the sort of behind AI story. There's power, there's the grid, there's gas demand. We're investing in that whole suite of opportunities.

That line that I brought up in that quote, we can bring up that quote again. Past investment cycles tell us that underinvestment is an underappreciated risk. Can you flesh that out for us a little bit more?

Absolutely.

I mean, you can look at past investment cycles.

I mean, I think about what happened in sort of, you know, 2003 to 2008, where we were coming out of, you know, the 90s and underinvestment in oil and gas infrastructure and drilling. And all of a sudden we had this demand shock and we didn't know what to do with it. We had thin inventories. You're seeing some real parallels to that today. And it's the thing we're really focused on right now.

At the same time, there is worry that maybe the capacity that's being built out might not be the right capacity or in the right places as it will be needed in, say, 10 years. How difficult is it to ascertain where to put some of these, how to generate the energy, how to create something that is going to be fit for a world that's going to change a lot in the.

Next 10 years?

Yeah.

Absolutely.

So we've been focusing on a few things. One, around the reshoring theme, making sure that there is domestic capacity to build out what we need to build out.

We've been focused on the grid.

Right.

I mean, the grid is one of the underappreciated risks that we.

Look at in the AI and power build out today.

Natural gas, making sure we've got the right natural gas infrastructure.

We're going to be using natural gas for a long time. This is not just a transition fuel.

This is something more.

And making sure that we've got really the infrastructure.

In and around it.

And then, you know, there are other components to it. There's, you know, there's resiliency within the grid. There's resiliency within power supply.

We're also looking more around.

Defense, right, making sure that we've got those investment themes covered as well.

Does it concern you that financing has gotten creative, increasingly creative, and the different counterparty risk is increasingly obscured.

In some cases?

No, I think creativity is part of what we do at Apollo and making sure that we've got really sort of bespoke solutions for investment-grade companies. I do think you're seeing a real flight to quality, though, looking at better names, better opportunities, particularly in an environment like this.

When you look around the world and you're looking at energy security, The Middle East, are you seeing more and more deals come online for companies, for countries to make sure that in the future they have something like Saudi Arabia had, an east-west pipeline?

Absolutely.

I mean, we're investing in economies.

That's something we're really spending a lot of time thinking through right now. But I think what we're seeing right now is there's a real premium for energy security and really being able to invest in and around that theme. You know, the other thing that we're really seeing is, you know, the cost of just moving these molecules has gone up. If you think about insurance, if you think about security, if you think about just the fact that folks are having to take longer routes to get tankers to market, you've really seen a change in how we think in prices.

Do you think there's any political pushback to all the work you are doing? You see it in the polls. Tyler was mentioning how most of America doesn't think this administration is doing enough to take on their AI concerns. What you're doing is funding everything that.

Builds that out.

You know, we're investing in the industrial renaissance and we're investing in reshoring and we're investing in the grid and power. And these are all things that we need, not just for data and AI, but really for just broader industrial growth in the U.S. So while I do think, you know, we see pushback in some communities, we listen. We're very responsive to that. We want to make sure that we're putting data centers where folks want data centers to be put and really making sure that it's part of a broader theme around how we really grow the economy.

It's the risk of getting caught off-site. That's what Anne-Marie's talking about, the risk of getting caught off-site to the changes in the political winds. There's also a risk of getting caught off-site with regards to technological breakthroughs. You talked about the risk of under-investing. I look back to a certain period. Let's talk about putting down dark fiber. The overcapacity...

was a consequence of underappreciating the technological breakthroughs and the efficiency gains that we might see. How do you make sure you're not caught offside with regards to technological obsolescence and breakthroughs that we might see?

In the next several years? We're being very conservative on our assumptions. I do think that's a big part of our underwrite here. And we're continuing to underwrite technologies and particularly on the power side that we know work. Solar, batteries, like these are proven. These are quick to take to market.

They are efficiently priced. And they're becoming increasingly reliant with sort of more battery demand. So really focusing on things that we know taking conservative assumptions around that, around the life cycle, around the pricing of that, we think that'll continue to pay off.

As an investor, do you see this race for capital and seemingly an insensitivity to rates as a real positive, as an inability to say, hey, why don't you pay us, say, 10% yield, 11%, 12% yield, and we're good. And ultimately, you're not going to get a better yield in the free market.

So, hey, what do you think? Listen, right now, I think infrastructure is a great place to invest.

You know, as we really think about the types of assets and otherwise, I mean, it is, like, if you think about inflation protection, as you think about, you know, as you think about the ability to pass through some of these costs, this is a really fantastic time for infrastructure more broadly.

Okay, 6% on a UK 30-year this morning, Lisa.

Yeah.

Six.

People would rather invest in a picture with an arrow going up to the sky. And ultimately, what you're getting from the likes of SpaceX, I think it was quoted with an 8% yield or something like that for potentially investment-grade debt, the shorter term, 9% yields. All of a sudden, people start getting excited about the offset to the potential risks that.

You were talking about. The deal that Apollo may or may not be working on that we can't confirm or deny this morning.

Correct.

Then what's to stop investors from really testing the limits?

Is there a moment, Olivia, where these rates in this market put the brakes on things? Is it 100 basis points away? I know these are sort of like quite juvenile questions, but they are things people are thinking about.

Absolutely.

How far away is it?

No, I mean, we take this into account in all of our investment decisions. And frankly, we're looking at deals in the market right now and thinking about what's the right pricing on them, right? How do we think about a deal that maybe we're looking at in June and have spent incremental time on? And what is the right pricing for today? So it's certainly something every single day we're thinking about.

Stay with us. More Bloomberg Surveillance coming up after this. The Bank of America strategist Mark Cabana with this to say, we continue to believe that U.S. rates will remain elevated or rise further until macro data softens or financial conditions tighten. Mark joins us now for more. Mark, good morning.

Good morning.

I'm a client. Just play I'm a client. I call you up. I'm like, Mark, what on earth is going on? What is this? What's happening this morning?

So the catalyst this morning may be SpaceX. It may be better than expected German data overnight. But in the broader picture, what we think is happening globally is that there is a broad reassessment of where the neutral rate is. And the market had been unwilling to really test that based upon a lot of prior Fed guidance that we were receiving. Powell, in his last meeting in April, said, we think that we are modestly restrictive or at the high range of neutral. What that tells the market is there's an expectation that rates will be coming down because you think if you give it enough time, inflation will slow.

And then we got a shift in guidance with the new Fed chair coming in. And we've really clearly heard this at Jackson Hole. And Warsh said he was, quote, hard pressed to describe financial conditions as restricted. And to me, that's a really big deal because what it does is it sort of cuts the anchor line of where the market had been expecting the Fed to go. And now the market is saying, well, where can we go? What's to stop us? And that's why if you look at the rate move year to date, year to date, the 10-year is up about 115 basis points. Over half of that move has happened since Jackson Hole. Over half of it.

And to me, that's very consistent with cutting the anchor line on forward guidance. And so off we go. And then you encounter stops. You encounter new ranges that require new hedging. You encounter these things that exacerbate the extent of the move. But the broader context is that the Fed is now telling you that there's no guarantee it's going back to three. It's open for markets to find out where rates can go. And so off you go.

And rates keep rising until, as you highlighted earlier, one of two things happens. Not oil. Either macro data softens or financial conditions really tighten. And we may be at the very early stages of starting to see rates bite. You talked about how equities are lower this morning. I don't want to overplay any particular one-day move, especially given that we're.

At all-time highs.

But you're seeing it in U.S. high yield. You're seeing it in French bonds. You're seeing it in Italian bonds. So there may be the start of rates biting. It's very consistent with interest rate vol going up. And again, some of these positions and hedging flows exacerbating where rates are ultimately leading.

The question is, Mark, as you know, is that sufficient to put the brakes on the economy? And to what extent is the AI build-out and the rate insensitivity to the degree they are rate insensitive, skewing where people believe neutral is, including the Federal Reserve?

There will be a rate level where that sensitivity happens for all actors in the economy, including the AI players.

The question is, if you chase the AI players, because it may be well north of where we are, and if it is, you're crushing everything else. Does the Fed really want to go through that?

The Fed has one tool and a dual mandate.

That's it.

And their dual mandate operates through the aggregate macro economy. I get this pushback a lot, Jonathan. I get the pushback of, well, Mark, it's like there's two economies. There's a traditional economy and there's an AI economy. And how much can the Fed push it? Well, they've got one tool.

It's the overnight rate.

And that does impact the housing sector, the auto sector, the consumer leverage sector. Yes, it goes through those parts of the economy. It doesn't hit the economy equally. It's not fair. But guess what? Life is not fair. And the way this tool works is that it has to go through the interest-sensitive parts. Now, the Fed appears a little spooked by this. So do other central banks for other reasons. But the Fed appears spooked and they're saying, wait a second, the market has run ahead of where we think rates will likely need to go. It's pricing in a much higher neutral rate than what we thought existed.

And I think what they should be taking from the market move is, guess what? Neutral is probably a lot higher than you thought. And the reason inflation has been so sticky for so long is because rates were actually not restrictive. They were actually accommodative. Jonathan, we survey our clients. We ask them, what is your view on the stance of U.S. monetary policy? Accommodative, neutral, restrictive. Over 50% say accommodative.

Less than 10% say restrictive. And guess what? Financial markets are telling us that every single day. Equities at all-time highs. Credit spreads, yes. still very tight despite the vol move. So, yeah, rates naturally have to be higher. And they just seem a little shell-shocked. But my message to them is the market is telling you something. It's not doing the work for you. You need to go do the work yourself.

And you can't rely on the long bond doing it.

I love that you're speaking directly to them so that they will listen to you and possibly pick up what you're putting down. And I think Dale Kashkari was talking about that, that we're getting a signal from the market. Are you seeing any signs, though, of things truly breaking? And if not, are you saying that yields can go significantly higher than where we currently are before we get.

To that point?

We are saying that we are starting to see the bite of higher rates. Again, you're seeing it in U.S. high yield, triple Cs in particular. You're seeing it in European bonds. And there's different neutral rates in different parts of the world for various reasons. And the French protests should not be overlooked. I agree with that. So you are seeing some signs that it is in the early stages of biting. Is that enough to convince the Fed that...

we're definitely too far? I don't think so yet. I'm not going to believe it until I see macro data soften or a broader tightening of financial conditions. And I would imagine that they will judge similarly. And the challenge is that they're spooked. They think it's gone too far. And they're talking down the market, right? We need more time.

There's no urgency. And so what does the bond market do? The curve just bear steepens massively. And the choice that we think they face is literally hike or bond spike right now. Those are your two choices. I wish you had a third, but you don't. Fiscal policymakers can maybe do something, but that's highly unlikely. So for the Fed, those are your two choices right now. And we believe that they will want to rely on the front end.

because they can control the front end perfectly. If they overshoot, they can bring it back down. The long end, they have very little control over, especially if they don't want to use the balance sheet. It can be like a wrecking ball in financial markets. It can overshoot, it can result in disorderly moves, and it can then really result in perhaps too much of a tightening in the economy.

So for them, I think you've got to rely on the tool that you have, and you have to keep hikes on the table. It seems very, it just was very surprising to us that they tried to talk the market down even before they saw payrolls and even before they saw CPI. And hopefully the Fed speak next week. We'll try and give a little bit more optionality for the Fed because if they.

Don't rely on that. This was the old guard. This was the old guard of the Fed that were doing that.

Well, yes, and it's also the old guard of the Fed that are trying to provide forward guidance. Now, let's be clear. They are guiding, and they were guiding last week. And even though Walsh says, I don't want a guide, he's asking his deputies to do it. I mean, it's like two of the three in the Troika.

So, of course, they have talked about this. You think that's the case? Oh, yeah, absolutely. You think Walsh is actually doing the bidding for Walsh?

Yes, absolutely. I think they probably talked together, and they said, whoa, we've overshot here. This is more than what we had anticipated. They only have a 4.1% median dot for the total hiking cycle. The market's at 4.7. It was close to 5% when they started talking the market down. So I do think it was very deliberate forward guidance. You just can't change some of the ways that these institutions operate, nor.

Should you, really.

But yeah, you may not like forward guidance. You're guiding. And that is dangerous because it's driving this curve steepening, in my view.

This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from 6am to 9am 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.

Bloomberg Surveillance TV: October 7th, 2026

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