Episode summary
Wall Street’s Favorite Trades Collapse After Market Selloff
Bloomberg Surveillance
· · 7 min · Guests: Priya Misra, Brian Frank
Summary
The guest argues that the recent market selloff reflects shifting fears rather than a single trigger. One driver is uncertainty around Fed leadership and balance-sheet policy: the market initially read the Warsh nomination as mildly easier for rate cuts, but she pushes back against the idea that it would also accelerate balance-sheet unwind. She says the bigger issue is that investors are reassessing crowded trades, especially software, after a wave of AI-related disruption and heavy capital spending expectations.
On credit, she says the bond market remains more comfortable than equities. Spreads are still tight because corporate fundamentals, leverage ratios, subscriptions and margins look solid, and she thinks diversified high-quality credit remains attractive. She is not reaching for the weakest credits, but prefers investment grade, some high yield, and selected securitized credit, while staying away from loans because of software exposure.
For rates, she says the yield curve steepening would be a warning sign if it reflects falling front-end yields and a weakening labor market. The market is currently pricing only two rate cuts this year, but she says if layoffs pick up, the Fed will respond more aggressively and investors should worry more about the economy than the bond market.
Key takeaways
- The guest says the Warsh nomination did not change JPMorgan’s portfolio positioning, even though markets initially reacted to it.
- She argues that fears have shifted from Fed policy to capex, AI disruption and software displacement.
- She says the bond market is comfortable with big technology capex because fundamentals and spreads remain solid.
- She thinks a steepening curve from lower front-end rates would signal a weaker labor market and more Fed cuts than are priced in.
- She prefers diversified, high-quality credit and would not move into triple-C risk because spreads are too tight for the cushion.
Notable quotes
“We're currently only pricing in two rate cuts this year. It's so that front end, if it if the curves deepens because the front end rates fall, that's a sign that the job market is much weaker”
“I think the fears have morphed. We've dealt with a lot this year and just in the equity markets concerned about the CapEx”
“Credit spreads are looking at fundamentals. The fundamentals of the companies that are doing the CapEx are very solid”
“we like credit risk diversified, high quality. We haven't really gone down to the triple C part of the market”
How the episode opens
Great question, because we've only heard about the Wash nomination just a week ago and the market's been extremely volatile. You know, I think there was some knee jerk reaction. I mean, he's highly qualified, but it is a committee.
He's going to he's being very critical about Fed policy for the last 15 years. He's going to have to build consensus. So did we change portfolio positioning because a wash?
No, we are going to wasn't affected market. I think it is. It's a world turned upside down for a lot of people.
Right. I think the market, at least on Friday, looked at the front end and said, oh, Warsh might be more open to cutting rates because he's in the supply side pickup in productivity the long end got a little nervous and that I would strongly push back against. I know he's been critical of the balance sheet expansion and QE by the Fed, but a lot of that QE is to provide reserves to the banking system and the Fed understands it.
I think if Warsh comes in, he's going to look at the analysis and actually not be able to cut the balance sheet. I don't think he has votes on the committee. So the market got nervous about the unwind of the Fed balance sheet.
I think that we can feed there are other issues this week. Is the CapEx too much which last year everyone wanted a shake act and now they're saying this might be too much of a good thing. And then is there displacement in the software sector?
So I think the fears have morphed. We've dealt with a lot this year and just in the equity markets concerned about the CapEx, as you mentioned, we had Rob Shiffman in yesterday.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- risk-off
- fed rate policy
- ai spending
- bitcoin selloff
- treasuries rally
Companies and tickers mentioned
- JPM
- AMZN
- JPMorgan Asset Management
- Anthropic
- Amazon.com Inc.
- Frank Funds
- Samsung Electronics Co.
- SK Hynix Inc.
Watch the episode
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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