Wall Street Hit by Tech Rout as AI Winners Tumble

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2:14Carol Massar:Radio. News. This is Bloomberg Business Week Daily. Reporting from the magazine that helps global leaders stay ahead with insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Business Week Daily Podcast with Carol Masser and Tim Stenevec on Bloomberg Radio. All right, so let's talk about the next era of the U.S. Central Bank and more. Here with us once again in studio, Matt Lizetti. He's Chief U.S. Economist, Head of U.S. Economic Research over at Deutsche Bank. Good to have you back with us. Good to be back.

2:52Carol Massar:It does feel like we're trying to figure out who's next. You do actually write specifically about a Warsh nomination and what it would mean for the Fed. Does it really matter who ultimately will be as Fed chair since it is one vote and an important vote? Yeah, so, you know, we've had to, as this news evolves, write just about everybody that's a frontrunner. So we wrote a HACCP piece before, you know, months ago. I think we were talking about Governor Waller and why we thought he could have been a very good candidate for Fed chair. But to the question of does it matter? I mean, the market is pricing it like it does matter.

3:21Carol Massar:There's a premium in the June FOMC meeting. We're building in more rate cuts at that meeting than the surrounding meeting. So the market is pricing something happening as that transition takes place. I think we're a little bit more skeptical of how much it can matter. You know, clearly, I think Chair Powell has mattered recently. I think you don't get the December rate cut without Chair Powell essentially pushing it through what is a very hawkish committee at this point in time. But I think he built up that confidence, the credibility within the committee over a period of time. Just somebody coming in from the outside with a more dovish view is not going to be able to get this hawkish leaning committee to cut rates aggressively up front.

3:55Of the candidates who are the reported frontrunners, is there one who would send a signal to you or maybe send a signal to the markets that the Fed's independence is at stake?

4:07Carol Massar:Yeah, I think that there's lots of questions around this. I think when you kind of see surveys, Kevin Hassett raises some of the most concerns around Fed independence and kind of commitment to get inflation back down to target. And I think that's somewhat quite natural. I mean, he's been in the president's orbit for a period of time here. He's been an economic advisor for the president. He's been calling for aggressive rate cuts at this point in time. All these candidates are doing so at this point, as we heard from Governor Waller recently. And so I think whoever it is, the next Fed chair is going to have to earn the market's trust that they are going to commit it to bring inflation back down to target.

4:43Carol Massar:And I expect the market to challenge that a little bit. Hey, Matt, you know, the New York Times writes, next Fed chair in a no-win scenario, a selection process draws to a close. And they go on to say the person picked to replace Jerome Powell will be thrust into a credibility problem that will be difficult to escape. Is that the case? And I also wonder, you know, sometimes you get into a position and you realize the weight of a position. And we know what the Fed does means a lot, not just to the U.S. markets, but to global markets. Yeah. So, you know, I think it is the case that there's going to be a challenge for this next Fed chair coming in.

5:15Carol Massar:They come in almost with a mandate to cut rates meaningfully. The president has called for the Fed funds rate to be down close to 1 percent, near the lowest in the world. And yet, even though Governor Waller said that inflation is under control, core PC inflation is at 2.8 percent. It's still 80 basis points above their target. We're now four and a half years in well above target inflation. And although the market's pretty sanguine about the inflation outlook, we do have a stronger growth outlook next year. We have fiscal stimulus that's coming through the pipeline. Sounds pretty good to me. It actually looks like a pretty good outlook from a growth perspective.

5:47Carol Massar:And then a question of does that feed through into higher inflation pressures? What about the labor market, in your view? We got some data yesterday. It was weird to say Jobs Tuesday over and over again. It's partial data, and we'll get some inflation data tomorrow. But the jobs market, how does it look into you? So the way we've been describing it, and I think yesterday was another case of this, it's a Rorschach test for how you think about the labor market. Each of these reports has good elements and bad elements. I think yesterday's report had strong job gains. It had a broadening out of job growth.

6:14Carol Massar:We've seen the private sector rebound. We had negative job gains in June. The past three months have been 75 ,000 plus in terms of private sector job growth. So that's all quite solid. The weakness was in the household survey. You saw the unemployment rate rise to 4.6%. Broader measures of labor market slack actually picked up more. I think importantly at the December meeting, Chair Powell highlighted why we should discount that data. It's coming right around the government shutdown. We thought that there was going to be distortions to that household survey. So Fed pricing hasn't really moved all that much on the data.

6:45Carol Massar:I think far more important will be the December jobs report that we get in early January. So the worst case scenario is we've got inflationary pressures, which sound like they could be coming in the new year because of some of the stimulus measures that we're certainly getting from the White House, Matt. But if we have more inflationary pressures, but we continue, if we get some confirmation in the December numbers, that yes, indeed, there is job weakness and maybe it's continuing, that's a tough predicament. It is. I think it's a direction of travel towards stagflationary type impulses for the economy.

7:16Carol Massar:It is what most economists and we thought you would get out of very large tariff increases. And so I think it is beginning to work its way through the economy. I think what we've learned, though, however, is this Fed under Chair Powell and undoubtedly, I think the next Fed, if you have weakness in the labor market, they will respond. They responded last year by cutting by 100 basis points. They responded this year by cutting by 75 basis points. are base cases that the labor market stabilizes enough over the next several months that the Fed does not cut in the first half of the year. But look, if you get confirmation that the unemployment rate is 4.6 % or above, I think the Fed cuts in the first quarter.

7:51Carol Massar:All right. Good stuff. Getting ready for 2026. Come hang out with us in the first quarter. I would love to be a comeback. We would love to have you back. Matt, thank you so much. Thank you. Happy holidays. Happy New Year. Matt Lizetti, he's Chief U.S. Economist, Head of U.S. Economic Research for Deutsche Bank. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

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11:04Carol Massar:Message and data rates may apply. JPMorgan Chase Bank N.A. Member FDIC. Copyright 2026. JPMorgan Chase and Company. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. So we just talked to Deutsche Bank's Matt Lizetti all about the Federal Reserve and his view on what the next Fed chair has in front of him or her, depending on who it is. I'm guessing our next guest has some thoughts on the Fed and what it means for financial markets.

11:42Back with us, Ali McCartney, Managing Director of Wealth Management and Private Wealth Advisor with Alignment Partners at UBS. Just over a billion dollars in assets under management. She joins us here in the studio. We're going to talk about the markets and today's moves and sort of big picture what you're looking at, but we got to start just with the Fed and how you're thinking about the next Fed share.

12:02Carol Massar:Next year and the Fed is going to depend all about, it's going to be policy and politics, right? I'm not sure which comes first. Market seems to be about 50-50 on whether we have a cut in January. We think you see two cuts next year, one in the first half of the year, one in the second. I think it will be largely dependent on who's in charge, what the inflation is, that we see coming into the market, whether it's from healthcare, we were talking in makeup chairs about the increase in cost of healthcare for, you know, average people going up almost 100%, as well as as tariffs push through from like later this year.

12:40Carol Massar:But it is, in a sense, it is anyone's guess. The markets seem to be pricing and playing as if they know there are further cuts. It's just It's not clear when or how profound. You know, if you look at the last Federal Reserve dot plot, you could sort of drive a truck through whatever neutral is. I think it was 2 % to 4 % was about the role. You know, so I think you basically have tailwinds that are, we know that earnings are going to be, you know, decent to good. We know those are going to broaden out a lot just from the IT trade. So that's, you know, one of the things. fiscal policy, especially in the first quarter, is going to be major as a result of both income tax sort of rebates, as well as corporate spending initiatives and accounting issues that are going to propel both earnings and cash on balance sheets.

13:33Carol Massar:And then again, you know, the Fed will be part of this for sure. Ali, when you look at 2026, and I just think about, I want to think about this year, like how we thought things were going to go initially when President Trump came back to the White House, how it played out, April Liberation Day. Like, I think we were all whipsawed in terms of our expectations and ultimately kind of how it all laid out. And I think we thought this was going to be a disastrous year. And yet I look at the major equity averages, not so shabby. Certainly, again, if you're a bull in this market. So, So, I mean, I don't know.

14:09Carol Massar:Is this a reminder that it's going to be maybe hard again next year to make calls, or is it different? Well, was it hard to make calls this year? So, you had to get two things right. You had to understand two things. You had to understand what AI was going to become in terms of a movement from the chief constraint being chips to the chief constraint where we now sit, and I think what's moving the market today, which is energy and land for data centers. and you had to get Trump right. So, okay, those are difficult. Those are very difficult. You also could have simply been long beta on the concept of earnings.

14:50Meaning you just throw money in the S &P 500. Meaning, exactly. And you're good.

14:54Carol Massar:Tough moments, but you would have done well. Exactly. Next year, I think it becomes, I think actually, if I'm thinking back to where I was a year ago, it becomes a little easier in the following. And while I can't say that I or we can get Trump right, I think we can get directionality and maybe short-term volatility. We can dampen because we know it largely leads to what he wants he gets, which is mid - or longer-term markets up. He does care about market direction. He does care very much about market direction. I think, you know, the craziest thing about getting Trump right or wrong was he told us exactly what he was going to do.

15:37Carol Massar:You know, he told us via press conferences, via other people, via, you know, social media. And so if you went with him, you got things right. I think this year things are going to be a little. So I think they're going to be a little easier in the broadening out of earnings. Right. So if you look at, for example, the S &P 500 or the Nasdaq this year, What you got was the AI trade contributed to about 75 % or 80 % of what ultimately became the upside. So if you look at the next best contributor, it's financials at 1.7%, right? Next year, I think you're going to get some broadening in that. I think industrials, materials, financials, healthcare are going to play into that.

16:22What happens if the promise of AI doesn't come to pass?

16:27Carol Massar:that's the biggest risk case i think the biggest risk case for next year is for investors or economists or policy makers is that we got ai wrong um the infrastructure it's not if you build it they will come it's not that we start to democratize and deepen it's a big bet it's a big bet and today that bet in terms of what's been coming out around blue owl and financing because One of my biggest takeaway from a four-day AI conference two weeks ago that UBS threw is that this is all about debt financing. There is not enough private debt and there is not enough capital on the balance sheets of the non-hyperscalers to get us where we need to be in terms of AI.

17:12Carol Massar:And so it has to be debt capital markets. Oracle is exhibit A. So to me, I literally left there going, oh, I understand what the constraint is now. I understand the difference between a, let's say, a core weave and how they talk about how they finance asset-backed AAA companies and how the market has been responding to that finance. I understand the private debt market and the private equity market saying we can only do so much in terms of what's needed. and so capital markets and public individuals have to come in. And so I do think that's the biggest risk, but I can also tell you from that conference and the conversations I've been having that this is truly revolutionary and moving to the bottom line in a way we've never seen before and that whether it's creativity in the financial markets, in the structural markets, that the productivity increases and the changes to both costs and revenue generation, we really are an inflection point that can support different multiples.

18:20Carol Massar:And the Oracle story is Oracle's financing for data center in Michigan progressing, but Blue Owl Capital, which has been a longtime partner in Oracle's rapid AI infrastructure build-out, opted not to contribute equity. So that's exactly what we're talking about. But right now, it is a closed, finite ecosystem. Right. And in order to get where we need to be going, it has to get much bigger. Allie McCartney, Managing Director of Wealth Management and Private Wealth Advisor for Alignment Partners over at UBS. Thank you so much. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

19:00This is the Bloomberg Businessweek Daily Podcast. Listen live each weekday starting at 2 p.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say, Alexa, play Bloomberg 1130.

19:19Carol Massar:All right, everybody, another IPO getting it in just under the deadline of 2025. I mean, the end of the year. It's the biggest initial public offering of this year. We're talking about Medline. It makes and distributes medical supplies such as gloves, gowns, exam tables. You've all worn them probably at one time or another. It's used by hospitals and doctors. I mean, it's just kind of like plain vanilla in terms of a company. Yeah, but this one is widely anticipated. The stock just surging in its first day of trading. It was up earlier, more than 20%. Carroll now 31 % higher. Yeah, like just out of the gates here.

19:53Carol Massar:So we wanted to talk a little bit about it. There you can see the real trade, 32 % to the upside. Bloomberg News equities reporter Natalia Kenejjevic is with us. Why were investors just so interested in this IPO? I mean, it was oversubscribed, according to those in the know, many times over. Exactly. I think like every IPO, most of IPOs are oversubscribed. But this one in particular shows that investors really want to see established businesses with clear profitability. Of course, it is a profitable business. It's been here for a while. the company was founded in 1966. So yes, it was oversubscribed.

20:31Demand was really strong across long-gown investors as well. And the company marketed shares between$26 and$30, priced at $29. Now it is trading at$37. It is a pretty successful story. Yeah, and a lot of big name Wall Street firms, private equity investors involved in this one. The backers and firms who were involved. It's pretty much everybody. Exactly. Yes. And this is also a very good signal for 2026 because many people expect more private equity backed companies going public. Again, of course, it depends on stock market volatility and other factors, but this is a very good signal for the stock market and IPO for 2026.

21:12Carol Massar:You know who hopes that those PE firms go public? Private equity firms, right? Because they have been trying to exit for a while. Natalia, staying with us, let's bring in Mike Bellin. He's the U.S. IPO leader at PwC. He joins us from Denver. Mike, good to have you here. The IPO year overall, give us some numbers, how we're ending up and how it compares to years past, because I think the peaks are back in what, 2020, 2021, back in the pandemic days. Yeah, well, thanks for having me. And I would say 2025 was the first true reopening of the IPO window in several years, but it was a selective one.

21:46Year to date, We've seen about 75 IPOs, including the one you were just talking about. That sounds good compared to the 62, 35, and 28 IPOs that we've seen in 24, 23, and 22, respectively. But a good IPO year in the U.S. is anywhere between 100 and 150 IPOs. So we're well behind that. But overall, 2025, we've been largely in line with expectations. And in some areas, it's exceeded them. We've seen activity spread across sectors rather than concentrated in just one area. That kind of dispersion is a strong sign and speaks to improving investor confidence. I would say the performance has been differentiated.

22:25Higher quality companies like the one you're just talking about with strong fundamentals, solid revenue growth, past the profitable or a path to profitability, reasonable leverage, and a compelling long-term story have generally performed well in this market. On the flip side, IPOs with higher debt loads, more aggressive pricing, they've struggled in this market, especially in a volatile macro environment. So that outcome has not been surprising, but it reinforced how selective investors are right now. OK, Mike, everyone just wants to talk about, with regard to 2026, SpaceX, and what that IPO could look like if the company decides to go public next year.