Episode summary
Nasdaq 100 Drops More Than 1% as Bond Yields Surge
Bloomberg Surveillance
· · Guests: Liz Ann Sonders
Summary
The market’s latest Fed cut was described as a hawkish cut: Liz Ann Sonders said it was not a surprise, and that Powell did not promise any clear glide path for further easing. She argued that growing dissent on the FOMC is healthy because it reinforces that the committee, not the chair, drives policy and can reduce worries about Fed independence. In her view, a wider range of voices is a positive development.
Looking into 2026, Sonders said the key variable is the labor market, especially because the government shutdown has left investors without fresh official labor, GDP, and corporate profit data. She thinks the Fed will remain data-dependent and will not ignore inflation, but she expects labor conditions to matter most for the reaction function. That means more than one or two cuts are possible, though she warned that any extra easing driven by labor-market deterioration would not necessarily be a clean positive for risk assets.
On equities, Sonders said earnings are helping the market broaden beyond the largest technology names. She pointed to a sharp increase in the share of S&P 500 constituents outperforming the index and said the rest of the market is seeing faster earnings growth, while mega-cap growth is still strong but decelerating. She sees that broadening as having legs into 2026, and she favors a GARP approach: own profitable growth, avoid lower-quality unprofitable small caps, and look for value with strong balance sheets and positive earnings revisions.
Key takeaways
- Sonders called the latest Fed move a hawkish cut and said the central bank gave no promise about the path ahead.
- She said more dissents at the Fed are constructive because the FOMC is a committee, not a single-chair institution.
- Sonders expects the labor market to remain the main driver of Fed policy in 2026, even if inflation still matters.
- She thinks market breadth is improving because earnings growth among the rest of the S&P 500 is accelerating as mega-cap growth slows.
- She would fade the unprofitable slice of the Russell 2000 and prefer profitable names with better fundamentals.
- Her preferred equity style is GARP: value characteristics with growth, profitability, and positive revisions.
Notable quotes
“Obviously the cut was not a surprise”
“We did expect what could be defined as a hawkish cut where they certainly didn't lay out any promises for the glide path going forward”
“I think the labor market is what's driving the bust right now”
“I think that has legs in 2026”
How the episode opens
Obviously the cut was not a surprise. They don't tend to buck market expectations, especially when they are particularly dominant in one direction or another. We did expect what could be defined as a hawkish cut where they certainly didn't lay out any promises for the glide path going forward.
And that's what happened. And just before I came on, you were talking about increasing dissents on the Fed. I agree.
I think that that is a good thing. I think it also helps to temper some of the concerns about independence of the Fed and and maybe something that either implicitly or or explicitly Powell is supporting that we can hear from lots of voices. And I think it's a reminder that the see an FOMC is committee, not chair.
So I think from the standpoint of that amount of uncertainty with regard to Fed independence, I think dissents and a wider array of views is a positive. Yeah. And speaking of new voices, listen, we're going to get a new Fed chair.
We know this in May. So how do you how are you thinking about interest, the interest rate landscape in 2026? Are we going to get more, do you think, than that one cut that Powell was talking about this week?
Tell me what the date is going to be. I could give you a guy an easier way. I mean, when you're got a dependent friend and you had the the effects of the government shutdown, which means we don't we haven't had any official labor market data since the September release.
We don't have GDP data. We don't have national income and product accounts, corporate profit margins, data. So I think as we start to get the data, I do think that the Fed, as it relates to their data dependency, they don't have a blind eye to inflation, clearly.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- bond yields
- nasdaq pullback
- inflation sticky
- technology valuations
- rotation to real assets
Companies and tickers mentioned
- SCHW
- AVGO
- GS
- MS
- DB
- RY
- UBS
- Charles Schwab
- Broadcom Inc.
- Interactive Investor
- Goldman Sachs Group Inc.
- Morgan Stanley
- Deutsche Bank AG
- RBC Capital Markets LLC
- UBS Group AG
Watch the episode
Watch “Nasdaq 100 Drops More Than 1% as Bond Yields Surge” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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