Episode summary
Bond Yields Fall as CPI Keeps Fed-Cut Bets Alive
Bloomberg Surveillance
· · Guests: Robert Teeter, Steve Wyett, Seema Shah
Summary
The guest argued that markets are being driven less by broad selling than by a fast rotation out of the biggest winners and into cheaper areas. With valuations high, the guest said investors are struggling to find a new narrative, but the pullback is opening room for smaller companies, industrials, and other laggards to catch up. The guest also said this looks more like a longer reallocation trend than a brief trade, because even modest rebalancing can move underowned parts of the market.
A major theme was geographic rotation. The guest said international equities have continued to outperform U.S. stocks after a strong 2025, and that there is still room for investors to rebalance toward non-U.S. markets and smaller caps. The guest’s preferred theme is the shift from the builders of AI to the users of AI, which the guest said generally favors smaller companies and firms able to use technology to cut costs and improve margins.
On large-cap tech, the guest was cautious but not bearish. The guest said the fundamentals remain strong, though the market is questioning the narrative as profit margins and growth expectations come under pressure. On fixed income, the guest said bonds look attractive because rates should trend lower over time as inflation stays above 2% but not dangerously hot and the labor market softens.
Key takeaways
- The guest said the market is in a rapid rotation, not indiscriminate selling, with money moving out of past winners into lagging sectors.
- The guest expects the U.S.-to-international and large-cap-to-small-cap rotation to have room to continue as investors rebalance.
- The guest’s core theme is shifting from AI builders to AI users, which the guest thinks favors smaller companies and margin-improvers.
- The guest remains cautious on valuations in large-cap tech but does not expect a lasting collapse because the underlying fundamentals are still strong.
- The guest said fixed income looks attractive because rate cuts should pull Treasury yields lower over time.
Notable quotes
“markets are really struggling to find a new narrative here”
“It's not indiscriminate selling, but it is a very powerful and very fast rotation from the winners of the past few years into some new areas”
“Our mega theme really has been the shift from the builders of AI to the users of AI”
“I think now you get rewarded for being diversified doesn't mean you abandon large cap tech diversified more into fixed income”
“I think the path is lower for rates over time”
How the episode opens
It's a great observation. I saw that chart as well. Fascinating.
I think it speaks to where we are with markets. You have a solid foundation as far as the economy, but with where valuations are, markets are really struggling to find a new narrative here. The one thing I take a little solace in is that you're getting some rotation.
You are seeing strength in some parts of the market. It's not indiscriminate selling, but it is a very powerful and very fast rotation from the winners of the past few years into some new areas. And so I think that chart really speaks to the point that this rotation is happening quickly and it speaks to the fear that comes alongside having high valuations with the change in story Historically, rotations, how long do they last?
Typically, like here, we're rotating out of some high growth, maybe some tech or tech tech names into some more industrial, maybe smaller mid-cap. Is that a short term trade measured in quarters, or could it be something longer? I think it could be something longer.
One of the things that I think that making people a little bit jittery here is that it's happening so fast and so powerfully. The counter to that is that it doesn't take a lot to move some of these areas that have been under love. So we put together this matrix and thought about, you know, what happens if I works or doesn't work in the economy, stay strong or weak, people start to rebalance a little bit.
It doesn't take a lot of rebalancing dollars to improve some of those areas that have been winning. So I think the part people are worried about is the speed with which money's coming out of some of the winners.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- fed rate cuts
- cpi inflation
- two-year treasury yields
- sector rotation
- equity market stability
Companies and tickers mentioned
- BOKF
- PFG
- Silvercrest Asset Management
- BOK Financial
- Principal Asset Management
Watch the episode
Watch “Bond Yields Fall as CPI Keeps Fed-Cut Bets Alive” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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