Bloomberg Surveillance TV: May 11th, 2026

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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferro, along with Lisa Bramowitz and Roy Hordern. Join us each day for insight from the best in markets, economics and geopolitics. From our global headquarters in New York City, we are live on Bloomberg Television weekday mornings from 6 to 9 a.m. Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business Out. We begin this hour with stocks just about holding on to all-time highs. Aaron Canada, Clear Harbor Asset Management writing, this has been an exceptional period for risk assets. And yet, the composition of that.

return should give investors pause. Aaron joins us now for more. Aaron, good morning. Good morning. What a move in semis, 5% Friday, 11% last week. What are we? 60% off the lows from the end of March? Maybe more than that at this point. Are we in bubble territory now? It's a good question. You know, semiconductors like most cyclicals tend to look really cheap when, you know, they tend to be expensive when P.E. multiples are low and they tend to be quite cheap when P.E. multiples are high. And, you know, right now, if you take a look at some of the memory chip names like Micron and SK-Hinix in Korea, they're trading at mid-to-high single-digit multiples, but that's because earnings have absolutely shot the moon. If you look at semiconductor exposure globally,

you take a look at emerging markets, SK-Hinix, Samsung and Taiwan semi, the top three holdings in emerging markets are semiconductor companies. 37% of the emerging market index is IT. You look at semiconductors in the United States, 8.5% return on the S&P 500, seven names consisting of 70% of that return, all seven focused on semiconductors. Two are more diversified, Amazon and alphabet, but still they're making semiconductors. The other five are pure semiconductor players. So this is a market globally, both home and abroad, very focused on that move. At some point you end up with so-called over capacity.

We're just not there yet. And you mentioned the earnings. The earnings underpinned by fantastic spending coming from a number of places. What would upend that spending? Well, I think at the end of the day, the return on investment question for the hypers, for the Microsofts of the world, for the alphabets of the world, may force, I wouldn't call a rapid adjustment in the CAPX expectations, or perhaps a modification of CAPX. If we're 750 billion this year, 850 billion next year on semiconductor AI hyperscalor spend,

and that adjustment moves from 850 to 8 or 850 to 750, that could, alter investment perceptions of the slope of the spend that we would anticipate. I think that could bring some pause back into the market into the enthusiasm of the semiconductor trade, and frankly, could serve as a tailwind to the microsawain to the alphabets, to the hyperscalor side of the equation. A focus on ROI would be a welcome tail win, I think, to those areas of technology. So how much of the rally is being underpinned by people who find it refreshing to talk about semiconductors rather than the war in Iran? Well, it's a good question. I mean, geopolitics historically, Lisa, as we all know, have not really in the medium to long term driven asset prices too significantly. It's always been a sort of a temporary phenomenon. And I think the eyes continue to be on earnings. We had 17% earnings growth on an annualized basis this past quarter. And that's even maybe considered a bit low relative to some of the headline growth numbers that we've seen. But a lot of these big tech companies,

companies and hyperskales have been buying private equity firms. And so, you know, that 26% headline number is probably closer to 17. Growth has been really strong broadly as well. Median S&P 500 growing at 14%. So this is a broad earnings growth story. I guess what I'm trying to get at is when does the real economy start to bleed into this semiconductor hopes and dreams that are driving this incredible rally? Is there some sort of trigger point where you get stiflationary worries baked into the market that starts to hamper this trade, that starts to hamper how much people will tolerate the increase in spending because prices are going up, not necessarily because they're building more capacity? Yeah, I mean, it's a big question. It's a big political

question that under sort of the undertone of that question speaks to some of the challenges around, you know, data center growth, utility growth, the regulatory environment, not in my backyard, high energy prices, the inflationary picture, you know, running above transit. You know, running above trend right now. We're going to see, you know, CPI tomorrow. And, you know, how does that feed into the sort of broader market? But at the end of the day, you take a look at, you know, sort of the massive 36% of the S&P 500 is technology, boom that we've been seeing across semis. And in a lot of the sectors of the economy that are much more sort of consumer focused are just smaller percentages of the overall index and have, you know, have less of a contribution to overall performance.

We've got consumer issues without a doubt, but right now that's a political problem. You're going to see that in the midterms potentially. That is not a market problem. Because the averages don't really show it. And this is the reason why people are ignoring it. Even as things get K-shaped and increasingly so, people say, well, that's too bad. And hopefully that doesn't lead to policies that are incredibly business negative. But until then, the music's playing, we're going to dance.

And that's essentially what you're feeling. Yeah, energy's, what, three-odd percent of the SEC? SP 500. Materials are less than 2% of the S&P 500. And so there you go. These are two big variables that are impacting consumers, but they're not impacting prices in the market. And this Fed's not going to cut any time soon. Yields up. Saw it on the graphic just there by four basis points this morning. 392. That's above the policy rate at the Federal Reserve. Unemployment close to 4%. You might have CPI closed to 4% as well later this week. How much pressure is on the incoming Fed chair? It's going to be interesting. Of course you have the

The thought that maybe this energy price spike due to the straight-of-form moves in Iran is going to subside in the weeks and months ahead. I mean, coupled with this idea that, not just an idea, we're seeing the data, employment remains relatively strong. Unemployment has trended up just a bit. If we were to see that soften a bit, I think on the margin, it gives the Fed an opportunity to cut again. But then you look at two-year treasury yields at, what, 390 this morning, and the upper end of the Fed funds rates at 375. So the market's not saying, oh, maybe the Fed's going to cut or hold. If anything, the market's starting to think, well, maybe the Fed is going to raise rates. Our view is the Fed's going to stay on hold for a while.

You're going to stay on hold as long as they can. And when they see some easing light at the end of the tunnel, if that comes, they're going to be more poised to cut than to raise. Stay with us. More Bloomberg surveillance coming up after this.

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So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300,000 can use AI to fill their HR questions, resolving 94% of common questions. Not noise. proof of how we can help companies get smarter by putting AI where it actually pays off. Deep in the work that moves the business. Let's create smarter business.

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With us around the table, Rachel Zemper of the Center for New American Security. She writes the following. President Trump hopes to change the conversation. from the Iran War by visiting China and announcing some deals. Rachel, joins us now for more. Rachel, good morning. Thanks for having me. Is it as simple as that?

I don't think it is. In fact, I had started to tell clients a couple weeks back that I wouldn't be surprised if the meetings got pushed back again. But then you would really run into the midterms and the like. You know, it's interesting to me. Treasurer's Secretary Scott Bessent is meeting with his Chinese counterpart earlier this week in South Korea. there still seem to be deliverables being worked out.

We're expecting this new Board of Trade, maybe a Board of Investment. They're supposed to do non-sensitive investment between the two countries. I'm not sure what fits in that basket of non-sensitive investment these days. And, you know, as you say, there's still a war on. And China is hurting now. But they also are going to be a beneficiary of this trend towards more coal, more renewables, more batteries. and so I think there's a lot of different leverage going around. This meeting was supposed to happen weeks ago and didn't because of this war.

It's happening and the war is ongoing. What changed? Well, it's interesting. So I think China actually wanted to have the meeting around this time of year. They didn't want to have it earlier in the year. So, you know, I think part of what changed is, you know, things have to go on. Also, President Trump is hoping that China will see in its own interest to bring the war to an end. And as I say, he's trying to reset and focus on trade and the like. Now, he's going in having just received a blow again to his trade agenda and tariffs, the 122 sort of ruling on Friday,

I think it was. Now, I don't think that changes things a lot because at the end of the day, the administration was going to use Section 301 tariffs to bring them back up. But we're at a moment where tariffs on China are the lowest rate they've been for most of the second Trump administration. Has anything changed in terms of the leverage that one country has over the other now versus when they were previously going to be meeting? I think the main area is probably one of almost the political and strategic elements. I think what it was economist or others who have said at this, don't get involved with your enemy when they're doing something that undermines them. and I do think that was China's original focus there.

What's changed now is that the economic costs, the real economic costs are mounting, right? I was talking just before I came on to chat with you guys about how plastics and the downstream effects of this crisis are really increasing. You're right, Lisa, the oil and the water, we don't know exactly what those volumes are, but what we do know is, is that today we have countries ranging from India to Australia, big allies of the United States at times, are preparing for even more rationing. So I think the industrial impacts are mounting. In terms of leverage, if anything, China's trying to exert more leverage over critical minerals, critical supply chains. And that's something that the U.S., you know, we have a time and consistency problem about how to address those issues.

Do both countries have the same approach of trying to stave off any kind of political pain in the form of consumer displeasure about higher prices? In other words, is a response from both sides to subsidize different things and potentially increase fiscal spending. Yeah, I think that's right. China, I mean, both sides and many countries around the world have that instinct. The problem is if you subsidize, then people continue to consume and then you might end up with real shortages. So that's only maybe a short-term solution. I mean, here in the United States, I think the instinct is to subsidize, but we actually haven't done much of it yet.

The gas tax could be reduced. There are some different ideas of floating around there. In China, they reset prices every month, so there can be some delays in passing that on. The other issue is China has made more strides than the United States to electrify as many things as possible. And so that electrification, using coal, using renewables. And, you know, we, you know, the U.S. government would like us to be using more coal, would like to convert more plants. But the challenge is also, you look at electricity costs, and China's been building out a lot more electricity capacity than we have in the United States. So I think the political sensitivities are

different. And of course, we got the midterms coming up, right? And China doesn't, I mean, the, the population thinks does matter, but they're not going to the polls and having to face the electorate and having to face the electorate with another round of supply chain restrictions and inflation. Stay with us. More Bloomberg surveillance coming up after this.

Support for the show comes from public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions, buying the dip, manually sweeping idle cash, putting on a hedge. On public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English, like if the VIX hits 25, buy a put option on the S&P 500, or if my cash balance goes above $20,000, move the excess into my direct index. You approve the workflow and your agent handles the rest. Monitoring the market, watching for your conditions, and executing your strategies exactly as defined. An investing platform driven by your intent, not just your clicks.

You can also get full read and write access to your account via the public API. Go to public.com slash market and fund your account in five minutes or less. That's public dot com slash market. Paid for by public investing. Brokred services by open to the public investing, Inc. Member FINRA and SIPC. Advisory services by public advisors LLC, SEC registered Advisor. Complete disclosures available at public.com slash disclosures. The thing about AI for business, it may not automatically fit the way your business works. At IBM, we've seen this firsthand, but by embedding AI across HR, IT, and procurement processes, we've reduced costs by millions, slash repetitive tasks, and freed thousands of hours for

strategic work. Now we're helping companies get smarter by putting AI where it actually pays off. deep in the work that moves the business. Let's create smarter business. IBM. When you own your own business, you own every decision. Now own the card that rewards you for it. The Chase Sapphire Reserve for Business card brings the best Sapphire Reserve benefits to business owners

who expect hardworking rewards. Designed to meet the needs of business owners at scale, this pay-in-full card elevates your travel experience and offers premium benefits and value toward business services that will take your business to the next level. Fuel your business and maximize rewards with 8x points on all purchases through Chase travel. 3x points on social media and search engine advertising, annual partnership credits, and more. Make every journey more rewarding with a $300 annual travel credit and access to a network of airport lounges,

whether you're looking for pre-flight productivity or time to rest and recharge. Chase Sapphire Reserve for Business. It's the card that gives back all you put in. Learn more at chase.com forward slash reserve business. Chase for business, make more of what's yours. Accounts subject to credit approval. Restrictions and limitations apply. Cards are issued by J.P. Morgan Chase Bank, N.A., member FDIC.

Let's turn back to our top story. Crude rising as the U.S. and Iran remain at a stalemate on a deal to end the war and reopen the strait of war. Rekhi Ibrahim of BCA Research, writing the following. If the straight is not reopened, markets will grow desensitized to the positive headlines. and prices will increase to reflect a tightening oil market. Rekiah joins us now for more. Rikai, welcome back to the program. That quote, of course, was true last month and a month before,

and we haven't seen crude explode higher. Why do you think we might be closer to that moment? Good morning, Jonathan. Thanks for having me on. So I think as we move further out, and the Strait of Hormuz remains close for longer, what we're seeing now is that there is this buffer of massive inventories that are shielding the oil market,

temporarily. But ultimately, these are stocks and their ability to shield the market is not infinite. And as the straight remains close for longer, you know, these inventories will continue to draw down and that buffer is removed. And so I think that as we move into, you know, further weeks and months ahead, if the straight is not reopened, you know, the path of least resistance for oil prices will be higher. I'd really appreciate your best guess. So the blockade continues and the administration wants to put more and more pressure on Iran to hopefully get to a moment where they breach storage capacity and compromise their wells. Meanwhile, Iran's trying to sit this out.

The blinking contest from their side looks like this. You've got all these inventories and we're waiting for you to drive down your inventory so you fill the pressure. Who do you think gets where first? That's a great question. So I think that, you know, what we're going to see is that, you know, Iran has proved to be quite resilient in terms of their pain threshold. And I think that, you know, going forward, I would not count on them blinking in the face of greater pain. So I think what we're going to

see is that the oil market is going to eventually bear the brunt of this. We have actually have seen quite a stable oil market for the past month or so. And, you know, as I mentioned earlier, that just reflects, you know, the buffer that we've had from the inventories, things like U.S. exports surging, China cutting back on their imports. But as this prolongs, these buffers are going to sort of wear thin. And, you know, their ability to shield the oil market is ultimately going to weaken. Rukaya, which of the Gulf countries are most exposed financially to the prolonged conflict? Should it go on for a longer period of time?

Yeah. So Iraq is definitely exposed here. You know, their inventories were the first to be filled. And so they've had to shut down their production, you know, quite a bit very early on in the conflict. You know, the other Gulf producers, so for example, Kuwait has also shut down a big share of their production. Bahrain, similar situation there. And then the ones that have been able to sort of weather the storm better are the ones that have the pipeline bypass capacity. So that's Saudi Arabia and the UAE, which are still able to get crude out of their countries by passing the Strait of Hormuz through either the East-West pipeline or the Port of Fujira in the UAE.

Are there similar offsets not just for crude, but for other commodities as well? Because we point to the fact that we are focusing on crude, but we're seeing, for example, cooking oil prices rise 5.6% in a month. This is affecting many other commodities. What's your sense of what else is getting through and how? Yeah, that's perfectly correct. I mean, what we're seeing also is that there's a massive disruption to fertilizer, which of course is also a byproduct of the energy sector. And so that's translating into upside pressure on agricultural commodities.

And also, you know, things like the closure of the Qatar Energy's Rastanura plant, sorry, Rassla fan plant, is also a disruption to the fertilizer industry. And so, you know, as this closure of the Strait of Hormuz-Provenu's, longs, you know, that also buffer where, you know, you have sort of the planting season that's taking place the spring planting season. And as the crops, you know, sort of progress and the harvest season comes and that fertilizer is insufficient, that also poses a massive upside risk to agricultural prices and all those byproducts that come from that. This is the Bloomberg surveillance podcast, bringing you the best in markets, economics,

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