Lisa Shalett Talks Fed Cuts

Summary

Bloomberg Talks: Lisa Shalett Talks Fed Cuts

Date: October 14, 2025
Guest: Lisa Shalett, Chief Investment Officer, Morgan Stanley Investment Management
Host(s): Bloomberg podcast team

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Episode Overview

In this episode, Lisa Shalett joins Bloomberg’s hosts for a timely discussion on market dynamics, with a particular focus on the extraordinary performance of gold, the relationship between asset classes, AI-driven market froth, sector rotations, and the impacts of dollar movements. Shalett elaborates on current market anomalies, offers insight into how Morgan Stanley is navigating this environment, and frames expectations for the coming year, especially as investors anticipate Fed rate cuts.

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Key Discussion Points and Insights

1. Gold’s Unusual Outperformance

[00:23 – 01:51]

• The discussion opens with the surprising surge in gold prices, outpacing equities:
  • Lisa Shalett: “We've really been on this extraordinary run for the past, quite frankly, three years…with gold massively outperforming stocks.” (00:45)
• Shalett proposes possible reasons:
  • Not just concerns about dollar debasement, but wider skepticism about fiat currencies globally.
  • The rise of stablecoins and crypto ecosystems may be prompting some players to use gold as collateral, suggesting institutional reserve building in gold.

2. Correlations Breaking Down Across Markets

[01:51 – 02:44]

• Traditional market relationships are shifting:
  • “All of these correlations are breaking down. …Perhaps we're really starting to see inflation in financial assets, just too much liquidity…sloshing around, looking for places to go.” (Lisa Shalett, 02:04)
• The “everything rally,” with capital flowing into gold, stocks, bonds, and currencies, indicating potential froth.

3. The AI Boom and Market Frothiness

[02:44 – 04:37]

• The hosts flag the AI-driven surge in equities and question whether some recent venture structures are becoming opaque and circular.
• Lisa Shalett: “The deal making and interconnectedness of all of it is starting to suggest to us that we're getting to that part of the cycle where…the analysts start making up new terms…It harkens back to the eyeballs and…the words we made up during the peak of the Internet.” (03:23)
• Shalett calls for transparency from companies, urging that market participants be able to distinguish clearly between real gains and speculative promises.

4. Timeline for Proving Value in AI and Tech

[04:37 – 05:39]

• On how long the market will tolerate froth before demanding tangible results:
  • Lisa Shalett: “What we've talked about is…how critical 2026 is and probably the second half of 2026…we're getting to that point of exhaustion and earnings need to come through…by next summer people are going to start saying hey, show me the money.” (04:53)
• Multiple expansion may be exhausted, shifting the focus to productivity and real earnings.

5. Sector Preferences Amid Uncertainty

[05:39 – 06:31]

• Hosts ask where Morgan Stanley sees current value.
• Lisa Shalett: “Our favorite sector for the last 18 months has been financials…They obviously will have the tailwind of likely a steeper yield curve next year…deregulation…So I think that’s kind of an ideal environment for them.” (05:46)
• Financials are expected to benefit from margin-expanding AI implementation.

6. Impacts of Dollar Weakness

[06:31 – 07:34]

• On how recent dollar movements are reshaping strategy:
  • Lisa Shalett: “We've had a view that inflation is going to be sticky…a weaker dollar actually inhibits our ability to effectively price imports. And when you multiply that by tariffs, it’s an even bigger headwind.” (06:52)
• While earnings are helped by a weaker dollar for multinationals, import pricing and inflation could degrade.

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Notable Quotes & Memorable Moments

• “We've really been on this extraordinary run…since the bull market began in the fall of 2022 with gold massively outperforming stocks.” (Lisa Shalett, 00:45)
• “All of these correlations are breaking down…We're seeing, you know, folks buy, you know, everything from, from gold to stocks to bonds to currencies.” (Lisa Shalett, 02:04)
• “As these deals are rolled out…the companies are making the effort to really help us map what is real, what is on the calm and what is…a promise that could vaporize.” (Lisa Shalett, 03:23)
• “By next summer people are going to start saying hey, show me the money.” (Lisa Shalett, 04:53)
• “Financials should be a place where we start to see stories at least of gen implementation, driving margin expansion.” (Lisa Shalett, 05:46)
• “A weaker dollar actually inhibits our ability to effectively price imports…It's actually an even bigger headwind.” (Lisa Shalett, 06:52)

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Timestamps for Important Segments

• 00:45 – Gold’s extraordinary performance and possible crypto-reserve drivers
• 02:04 – Breakdown of market relationships and “everything rally”
• 03:23 – AI boom, deal-making froth, and analogies to the dotcom era
• 04:53 – Timeline for earnings accountability and skepticism about future growth
• 05:46 – Financials as a favored sector, rationale and forward-looking views
• 06:52 – Dollar weakness, inflation stickiness, and implications for global trade

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Tone and Style

Lisa Shalett speaks with clarity, skepticism about easy narratives, and a focus on fundamentals, urging transparency and accountability. The discussion is analytical but accessible, laced with allusions to past market bubbles and cautious optimism about specific sectors amid wide uncertainty.

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Summary Takeaway

The episode delivers a nuanced look into the current financial landscape: Gold’s rally, frothy AI-driven markets reminiscent of dotcom exuberance, and the importance of 2026 as a proving ground for the market’s hype cycle. Shalett emphasizes focus on fundamentals—especially in financials—and warns of persistent inflation risks tied to the weakening dollar. Investors, she suggests, should stay alert for signs of real productivity gains and remain skeptical of hype until clear evidence emerges.

Transcript

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[Podcast Host]

One of our fave guests on these markets is Lisa Shallet. She's a chief Investment officer for Morgan Stanley Investment Management. You've heard of them? They're pretty good over there. I've competed against them my whole career. I had some wins, I had some losses over the years, but they're pretty good. Lisa, we got to start with gold. I don't know what's going on. Do you have any idea what's going on? I mean, who's buying this stuff?

[Lisa Shallet]

So I don't know if we have an idea. We have a hypothesis, right? So, you know, I know over the last couple of weeks, a lot of folks have talked about gold as maybe a hedge to some of the frothiness in the equity market, etc. But we've really been on this extraordinary run for the past, quite frankly, three years since. Since the bull market began in the fall of 2022 with gold massively outperforming stocks. And so one of the things that we've begun to think about is, is not just dollar debasement, but whether or not folks are really worried about fiat currencies more broadly around the world. And as folks really, truly think about whether or not there is a credible, reliable future for stablecoins and for crypto, whether some of this ecosystem needs to collateralize itself with gold away from fiat currencies. And so one theory we have is that some of these players may be trying to build some reserves in the yellow metal.

[Podcast Co-Host]

Gold massively outperforming stocks. I wanted to go there because this is not the correlation that we're accustomed to. And as we talk about kind of the uniqueness of this moment, perhaps the weirdness of this moment, and what does that tell you? How does that kind of shape the way that you're looking at these markets?

[Lisa Shallet]

Well, it really requires some. Some creativity because a lot to your point, all of these correlations are breaking down. And so one of the hypotheses that we have is that, you know, we've got this scenario where, yes, we haven't seen inflation in the real economy, but perhaps we're really starting to see inflation in financial assets, just too much liquidity from everywhere around the world, sloshing around, looking for places to go. And in the everything rally, you know, we're Seeing, you know, folks buy, you know, everything from, from gold to stocks to bonds to currencies.

[Podcast Host]

I like this quote in your notes, Lisa. Bull markets are meant to be ridden, not timed. That's very good. What we have heard, you know, maybe over the last year or two, but really the last two, three, four weeks is just that concerned about AI. And it's been such a big catalyst for the broader equity markets overall, not just the tech space, but now we're starting to see some of these circular deals where this company's investing in open air, who's then investing back and buying stuff and doing all the kind of circular stuff kind of feels a little odd. Is it odd to you? Does it feel frothy to you? How do you think about that?

[Lisa Shallet]

It does. And you know, for us, whenever these trends are transparent and trackable, which they really were for the last three or four years, you could say I see the order book, I see the cash flow, I understand how they're going to fund these capex plans. But in the, literally in the last eight to 10 weeks, the deal making, the pace of the deal making and interconnectedness of all of it is starting to suggest to us that we're getting to that part of the cycle where, you know, the analysts start making up new terms. You know, this RPO and revenue that's been accounted for, that's still to be accounted for, it, you know, kind of harkens back to the eyeballs and you know, some of the words we made up during the peak of the Internet. And so what our hope is here is that as these deals are rolled out, that the companies are making the effort to really help us map what is real, what is on the calm and what is, you know, potentially just a promise that could vaporize if, if the demand isn't there.

[Podcast Co-Host]

As we think about the potential for froth or bubbles, what's the time horizon that you're looking at? What's the time by which these companies have to kind of prove, find the proof in the pudding here that what they're doing is actually leading to something that's, that's beyond just significant capex over and over again.

[Lisa Shallet]

Yeah, so, so what we've talked about is, is how critical 2026 is and probably the second half of 2026. And the reason is because the gains that we can really, you know, credibly get from multiple expansion feels like we're getting to that point of exhaustion and, and earnings need to come through. The controversy is not, you know, are there earnings for you know, the hyperscalers. I think everyone believes that. The question is are there productivity improvements? Some from some of the folks who are implementing and again I think we're willing to hold our breath for another six to nine months but I think by, by next summer people are going to start saying hey, show me the money.

[Podcast Host]

Yeah. Yep. How about in, are there certain sectors that's screening well for you guys right now and Morgan Stanley Investment Management?

[Lisa Shallet]

Yeah, I mean obviously I need to be careful about, you know, not talking my book but you know our favorite sector for the last 18 months has been financials. Obviously you know, maybe a tough tape to report into this morning but these numbers I think from the sector, you know, look reasonably strong to us. They obviously will have the tailwind of likely a steeper yield curve next year of some, you know, deregulation in addition to a decent deal backdrop. So I think that that's kind of an ideal environment for them. And financials should be a place where we start to see stories at least of gen implementation, driving margin expansion.

[Podcast Co-Host]

Lisa, a few minutes ago you mentioned dollar strength or dollar weakness. I guess it's like, like glass half full or glass glass empty. But I'm curious how much that has been driving your thinking over the last few months. The weakened dollar that we've seen and I look at the Bloomberg dollar spot index up a little bit here today, seeing a little bit more strength today, but the story has been one of a weaker dollar. And how is that shaping your view of things?

[Lisa Shallet]

It certainly does play into it. I mean we've had a view that inflation is going to be sticky. And what folks need to remember is while you know, a weaker dollar can certainly be helpful for the earnings dynamics for large multinationals who trade around the world and their competitiveness, a weaker dollar actually inhibits our ability to effectively price imports. And when you multiply that by tariffs, it's actually an even bigger headwind. So you know, we do think that that weaker dollar is, is relevant to the real economy and to some of the forecasts year.

[Podcast Host]

Lisa, thank you so much for joining us. Really appreciate it. Lisa Shallis, she's a chief Investment officer for Morgan Stanley Investment Management.

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