Bloomberg Surveillance Sep 17, 2026 44m 32m saved
With Julian Emanuel, strategist at Evercore ISI · Colin Martin, Chief Fixed Income Strategist at Charles Schwab · Savita Subramanian, who leads equity strategy at Bank of America · Lakshman Achuthan of the Economic Cycle Research Institute · Robert Hormats of Kissinger Associates, who served in five American administrations
Half of S&P 500 debt was floating rate in 2007. Today it is 80% fixed, Savita Subramanian said, which is why she does not treat a 5% 10-year Treasury yield as the red line the market treats it as.
The morning after Kevin Warsh delivered the first Fed hike since 2023, the European Central Bank raised rates too and the Bank of England held. Five guests disagreed about almost everything except the direction of the next few Fed moves.
"I think the history shows us they tend to do more than that."
Between them the guests run equity strategy at Bank of America, fixed income strategy at Charles Schwab, the research institute that dates business cycles, and a diplomatic career across five administrations. Evercore ISI's strategist covered the earnings side.
The full episode is covered here so you can skip it. 44 minutes of audio, 12 minutes of reading.
Here are the 13 calls that matter.
Key Takeaways
Lakshman Achuthan says the US is flirting with an inflationary boom: 8% nominal growth last quarter against 1.5% real
Bank of America forecasts earnings growth slowing from 30% to 15% next year, which Subramanian calls still healthy
Colin Martin thinks a 5% 10-year is reasonable for an economy with 6%-plus nominal growth, and that yields will struggle to fall much
80% of S&P 500 debt is now fixed rate, against about half floating in 2007, so higher yields bite small caps rather than large ones
Julian Emanuel says last quarter was peak rate of growth and peak surprise, and that the choppiness since is investors digesting it
Subramanian's preferred allocation is large cap value — financials and energy — which she calls under-owned and boring
Robert Hormats wants the Xi state visit to produce an arms-control analogue for AI, covering rogue and autonomous actors
1. Central Banks Diverge
The show opened on three central banks moving in different directions on the same morning: the ECB hiking, the Fed hiking, the Bank of England declining. Julian Emanuel said simultaneous global tightening is historically hard on equities without being fatal to the cycle. He also said the big American banks had outperformed heavily until a few weeks ago and have been correcting on softer trading volumes, and that what changed at the Fed was the removal of a tail risk clients had been raising: a 10-year yield at six or seven percent.
"When global central banks are hiking, stocks have a more difficult time. The bull doesn't die, and we don't think it dies now. But the road ahead is bumpy." — Julian Emanuel
"And so, again, for us, the most important feed-through for the last number of months has been the 10-year yield. Oil pressuring the 10-year yield. 10-year yield pressuring the ability for hyperscalers to issue debt. You've sort of got the release valve here." — Julian Emanuel
2. Past Peak Earnings
Asked whether the coming earnings season repeats the last one, Emanuel said no, and gave the reason: growth ran somewhere in the 40s and close to 50% year on year last quarter. He expects another strong quarter without the same rate of change. He also described an unusual year on his own desk, in which he raised earnings estimates repeatedly without moving his price target, which means the multiple has already compressed.
"Look, it's going to be another amazing quarter, but that was peak rate of growth and peak surprise." — Julian Emanuel
"So in my time of being a strategist, we have never had a year like this year where we've taken our earnings numbers up as aggressively as we have, lagging the brilliance of this trajectory, but haven't changed our price target." — Julian Emanuel
Emanuel said he is not selling into the open and that the volatility is normal for September with a new Fed chair, the start of a hiking cycle, oil at $100 and midterms under two months away.
3. Where Yields Settle
Colin Martin walked through what happened during the Warsh press conference, when the 10-year first fell on the credibility of the hike and then rose as Warsh described a strengthening economy and the crowding-out effect of corporate bond issuance. His conclusion is asymmetric: a hike or two may cap long-term yields, but the forces pushing them up have not gone away. Asked whether a 5% 10-year is reasonable against 6%-plus nominal growth, he said yes, and pushed back on the alarmed framing of rising yields.
"I think there is more upside risk than downside risk with long-term Treasury yields" — Colin Martin
"And a Fed rate hike or two or three won't fix that. The economy is strengthening, as Warsh mentioned." — Colin Martin
"It's indicative of a strong economy, strong nominal growth." — Colin Martin
4. The 5% Coupon Cushion
Martin's advice to Schwab clients is a below-benchmark average duration paired with the income a 5% coupon provides, which absorbs price declines if yields rise further. He said advisers are starting to field the question of whether now is the time. His argument against sitting in cash to wait for more hikes is that the extra yield further out on the curve is already available and the size of the hiking cycle is unknown. He also described client events where the submitted question is about watching bond values fall daily, and said the answer is education about the secondary market and holding to maturity.
"But we're at a point now where the income earned can do a lot of the heavy lifting for your portfolio, can help drive total returns, and can help cushion that blow if yields do drift a little bit higher." — Colin Martin
"I mean, 5% really is that psychological barrier, and we're starting to get that." — Colin Martin
"And we tell them, well, you can get 100 basis points or more if you go just a little bit further out. So why wait for the Fed to hike? Because we don't really know how much they'll end up hiking when all is said and done." — Colin Martin
Asked which part of the bond market he prefers, Martin said credit in both investment grade and high yield.
5. Hyperscalers Derate
Savita Subramanian's standing thesis on the hyperscalers is that they are becoming more levered and more capital intensive, shifting spending away from research and buybacks toward physical capital, which normally compresses the multiple. That happened, alongside an earnings surprise. What she watches now is margins in 2027, where forecasts show expansion rather than compression, at a moment when supply chains are strained and inputs are getting more expensive. She noted she has been early on margins before.
"They're getting more capital intensive." — Savita Subramanian
"But I think now what we're in is this environment where you want to build, you want to build, and there's a shortage of products. There's complicated structures. You need this whole supply chain. Things are unavailable. Some of these are getting more expensive." — Savita Subramanian
"That, to me, is margins. That's where the risk is." — Savita Subramanian
6. From 30% to 15%
Paul Sweeney, describing himself as a former analyst, put the comparison problem to her: the 2027 comparisons have to be harder. Subramanian agreed the slowdown is arithmetic rather than a forecast, and named the numbers.
"The earnings slowdown itself is almost inevitable. You can't beat 50% growth or 35% or whatever we're tracking. But if you think about next year, the slowdown that we're forecasting is from 30% to 15%." — Savita Subramanian
7. Why 5% Is Not a Line
Asked how stocks perform if a 5% 10-year is the new normal, Subramanian said her team has never treated that level as a threshold, because the composition of corporate debt has changed. Large companies, including the tech firms adding leverage, have locked in long-dated fixed-rate borrowing. The exposure sits in smaller companies with refinancing to do. On the consumer she said oil prices and higher short rates are headwinds, but that benefits reaching lower-income households have been the year's surprise.
"I think that we've never been that worried about 5% as some kind of red line, even though it feels like that's the point of pain in the market." — Savita Subramanian
"Today, it's 80% fixed. So I think that's the good news. Small caps might have a harder time. They've got more refinancing risk." — Savita Subramanian
8. Large Cap Value
Subramanian expects a lower run rate of S&P returns than the last decade delivered, and said the index does not carry much dividend yield, so income has to come from somewhere else. Her answer is large cap value, which she defines as financials and energy plus whatever former technology winners have fallen into the value index. She contrasted the capital discipline in those sectors with the leveraging up in technology.
"I think that's one area of the market that is under-owned, boring, nobody wants to talk about it." — Savita Subramanian
"So large value we think of as financials, energy, and those are sectors that I think look pretty good." — Savita Subramanian
On AI she said she is not forecasting a bust, only a longer and more expensive build than the consensus expects.
"You know, renovating your house always costs more and takes longer than what you think it will. And I think that's the same thing for this build cycle." — Savita Subramanian
9. An Inflationary Boom
Lakshman Achuthan's framework separates the growth cycle from the inflation cycle, and both are pointing up. He said his inflation measures turned before the hostilities in Iran, which removes energy as the sole explanation. His numbers for last quarter are 8% nominal growth against 1.5% real, with the gap being inflation. On the Fed's own projections running out to 2029 without a slowdown, he said the squeeze arrives either way: growth falls with inflation still high, or inflation falls and profits go with it.
"But you got 8% last quarter. You got 8% nominal. You got 1.5% real. All that stuff in there is inflation." — Lakshman Achuthan
"My only gripe with him is he's looking at the coincident data. I'm looking at the forward data. The trend in the forward data remains up." — Lakshman Achuthan
"I think the history shows us they tend to do more than that." — Lakshman Achuthan
He also said the gap in market pricing is not the growth view, which he thinks people have accepted, but inflation expectations, which he described as relatively calm and therefore the place where movement is likely.
10. AI's Missing Gains
Sweeney asked how much of the heat in the economy is AI, and how long the investment stage runs. Achuthan's answer was that the effect is not yet in the data. Productivity briefly approached 3% and has fallen back toward 2%, which he says leaves the Fed without the structural disinflation it would need.
"Everybody got excited because productivity edged up towards 3%. Now it's closer to 2%." — Lakshman Achuthan
"So I'm leaning a little bit more towards inflationary boom, however you want to express that in your life." — Lakshman Achuthan
11. Weakening Alliances
Robert Hormats described American diplomacy in terms of a divergence: China is building relationships while the United States is losing them, with the same countries that formed the Cold War bulwark and that he says will be needed against China over the next 20 years. Asked whether it can be repaired after the inauguration, he said not to where it was. He then made the case for Canada specifically, naming Mark Carney, whom he sat next to at Goldman Sachs for several years, and listing the hostages protected in Iran, Normandy, and NORAD.
"we are weakening our alliances across the board at a time when we should be strengthening them if we want to strengthen our hand" — Robert Hormats
"The Chinese are strengthening their relationships now. With Russia, with Iran, with Ukraine and the global south, we're weakening our relationships with the countries that were part of our bulwark in dealing with the Soviets during the Cold War" — Robert Hormats
"He wants to work with the United States. And I think the rupture in relations, as he's put it, is something deeply saddening to him and troublesome to us since it's our major partner." — Robert Hormats
12. Arms Control for AI
With Xi Jinping due in the United States for a state visit, Hormats said the test is whether the two sides can address AI credibly. His model is Cold War arms control: intense competition alongside a narrow agreement on the things that would be catastrophic for both. He named rogue actors and autonomous actors as the two categories, and said open-weight models make the competition impossible to contain, which leaves defensive work as the shared project.
"We're not going to slow down competition in terms of new models they're going to develop. But we do need to find ways of minimizing risk, minimizing risk with respect to rogue actors." — Robert Hormats
"So what we need to do, I think, is work on defensive measures in a similar way to what we've done in the past to figure out how to deal with the risk to our systems, the risk of biotech terrorism, a whole range of things." — Robert Hormats
13. After Trump
Asked what American diplomacy looks like after the current administration, Hormats reached for Eisenhower's Solarium group and its exercise of defining strategic interests from first principles. His three priorities are a functioning domestic system, a rebalanced set of alliances in which Europe and Asia carry more, and sustained economic pressure on adversaries. On Iran he said troops are not an option and described the terrain himself. On the State Department he said morale is poor, and that negotiating with Russia or in the Middle East requires history and culture that a career in real estate does not supply.
"I mean, I've been to Iran. I've seen the terrain. You're not going to put American troops there." — Robert Hormats
"When you get people who are totally out of that sphere, who have been real estate negotiators, they may be very good negotiators, but they've been negotiating in a wholly different sphere and they don't have the historic background." — Robert Hormats
Bonus Insights
The hosts spent the morning on the oil move, attributing the rally in equity futures largely to a pullback in Brent on Saudi news, from levels in the high 100s down toward 102 or 103. One co-host read out two opposing notes on the same press conference: David Rosenberg in Toronto called it head-scratching, while John Wraith of Brean Capital, who has worked for both the Bank of England and the Federal Reserve, called it an all-around much improved and impressive performance.
Kevin Gordon's chart of how many forecasters expect the economy to be fine came up twice, once with the note that the reading is now better than it was in 2021 with stimulus in place. Asked what happens to the cycle after Trump, Achuthan said presidents are variations on a theme and the cycle outlasts them. Asked what keeps him sharp at 79, Hormats said staying in the issues and teaching one course at Yale, where he also argued for admitting the best students from anywhere in the world.
The panel's collective bottom line is that the Fed is not finished, that a 5% 10-year is the level this economy supports rather than a warning, and that the risk in 2027 sits in margins rather than in demand.
Products, Companies & Tools Mentioned
Charles Schwab (Martin's firm; he described client reaction to falling bond prices and the case for a below-benchmark duration with a 5% coupon)
Bank of America (Subramanian's equity strategy team; she pointed to Jill Carey Hall's group and said the work is moving faster with AI)
Evercore ISI (Emanuel's firm; he said the earnings report his team publishes will not repeat last quarter's rate of growth)
Economic Cycle Research Institute (Achuthan's institute, whose forward inflation measures he says turned up before the Iran hostilities)
Kissinger Associates (Hormats's firm; he served in five administrations and worked for Henry Kissinger)
Brean Capital (John Wraith's note calling the Warsh press conference impressive was read on air)
Books & Resources Mentioned
"The Price of Liberty" – Robert Hormats (A co-host asked him to write an epilogue for it given the current state of the country)
If this was worth your time, send it to someone who has to have a view on this.
Get the latest market chatter as it happens: