Morgan Stanley's Jim Caron Talks Tech Selloff

Summary

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Podcast Summary: Bloomberg Talks

Episode: Morgan Stanley's Jim Caron Talks Tech Selloff

Date: February 13, 2026
Guest: Jim Caron, Morgan Stanley Investment Management
Host & Co-Hosts: Bloomberg Team

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Episode Overview

This episode features an in-depth conversation with Jim Caron from Morgan Stanley, focusing on the recent tech and software stock selloff, its broader market implications, shifts in inflation and the bond market, and the Federal Reserve’s potential actions in response to evolving economic data. Caron provides strategic insights about contagion risks, sector rotations, inflation’s future, and the role of productivity in wage growth—all against the backdrop of shifting macroeconomic trends.

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Key Discussion Points & Insights

1. Tech & Software Selloff—Is there Contagion?

• Market Dispersion and Firebreaks
  • Caron remarks on current market volatility, especially the sharp repricing in tech/software stocks.
  • He notes this volatility is not indicative of widespread panic:
    • “The risk isn’t necessarily being evenly distributed across all markets. And... that's good news.” (01:52)
  • There are "firebreaks"—divisions between public and private markets—limiting contagion.
  • Notable Quote:
    • "We're not seeing broad based contagion. So I think if there's a silver lining around all of this, I think that's it." (02:16)

2. Sector Rotation & Importance of Diversification

• From Growth to Value and Broader Market Participation
  • Ongoing rotation out of high-growth tech (particularly software) into value-driven sectors, including small and mid-caps.
  • Caron stresses the perils of over-concentration in 'Mag 7' stocks and underscores the value of a diversified portfolio:
    • “People just forgot about the other 493 [companies in the S&P 500].” (03:02)
  • Positive economic indicators back this move:
    • ISM data above 50, new orders at 57, steady GDP growth, and stable job markets (03:02)
    • “Cyclical broadening of the markets is actually really healthy for... more diversified growth.”

3. Goods Inflation: New Normal?

• The era of low goods inflation—largely flat since China's WTO entry—appears over.
• Caron does not foresee a return to ultra-low goods inflation (04:14).
• Shift away from services-only inflation:
  • “Now we're in a different, different place.” (04:26)

4. Inflation Target: Where Will It Settle?

• Caron challenges the higher-for-longer inflation thesis, expecting moderate stabilization:
  • “I think the number is probably around two and a half to three [percent]. That's likely where we're going to stabilize.” (04:46)
  • He doesn’t anticipate inflation below 2% absent recession.

5. Bond Market Dynamics & Rate Outlook

• Drop in Ten-Year Yield
  • Notable recent movement to 4.07%, even briefly dipping toward 3.99% (06:12).
  • Caron sees this as a possible temporary phenomenon, shaped by expectations of Fed rate cuts if inflation cools rapidly.
• Fed’s Dilemma: Wait or Cut?
  • The robust labor market and steady inflation offer the Fed two viable paths: cut or wait.
  • Caron’s forecast: likely one (possibly two) rate cuts within the year, but timing may lean toward late Q2:
    • “I don't think the Fed's going to do anything... in the first quarter... probably they're going to have to wait until... late second quarter.” (07:43)

6. Wages, Productivity, and Affordability

• Wage growth is necessary to improve affordability, but Caron advocates for wage increases driven by productivity, to avoid triggering inflation:
  • “What's going to make [a $20 hamburger] more affordable is that incomes and wages need to start to go up, but they have to go up in a non inflationary way. And the way that happens... is through higher productivity.” (08:29)
• Current productivity trends are favorable, enabling wage growth without stoking inflation:
  • “Right now the productivity numbers are accelerating higher. So it is likely if we get a recovery, that these incomes and wages can go up without creating the inflation.” (09:04)

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Notable Quotes & Memorable Moments

• On Market Contagion Fears
  • “We're not seeing broad based contagion. So... that’s the silver lining.” — Jim Caron, (02:16)
• On Over-Concentration in Major Tech Stocks:
  • “Mag 7, mag 7, mag 7. And people just forgot about the other 493.” — Jim Caron, (03:02)
• On Inflation’s Path:
  • “I do not [agree with a 4% inflation target]. I think the number is probably around two and a half to three.” — Jim Caron, (04:46)
• On Wage Growth and Productivity:
  • “The price of that hamburger is not likely coming down. What's going to make it more affordable is... incomes and wages need to start to go up, but they have to go up in a non inflationary way.” — Jim Caron, (08:29)
• Co-host Banter:
  • “See how clear he does that? ...That's how you get to think that clearly.” — Co-Host, (09:23)

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Timestamps for Key Segments

• [01:52] Caron on market volatility and lack of contagion
• [03:02] Discussion of sector rotation and diversification
• [04:14] Outlook on goods inflation
• [04:46] Inflation targets and expectation for stabilization
• [06:12] Bond market, 10-year yield, and implications
• [07:43] Fed interest rate outlook given positive labor and inflation data
• [08:29] Wages, affordability, and the vital role of productivity
• [09:04] Encouraging productivity trends and their inflation implications

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Tone and Style Notes

• The conversation is brisk and insightful, blending technical detail with clear, relatable analogies (e.g., the "hamburger" metaphor for wage-driven affordability).
• Caron's approach is measured, pragmatic, and focused on fundamentals.
• Hosts inject light banter and respect for Caron’s clarity and expertise.

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This summary delivers critical takeaways from the conversation, spotlighting Jim Caron’s perspective on current market turbulence, inflation, the Fed, and the crucial relationship between productivity and wage growth. Ideal for anyone wanting a concise yet thorough briefing on the episode.

Transcript

[Host]

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[Announcer]

Bloomberg Audio Studios Podcasts, Radio national news inflation coming up.

[Co-Host]

Here in four minutes. Michael Ball on deck. But first, Jim Carrey and joins us from Morgan Stanley. The note is brilliant. We protect the copyright of all of our guests. Get Jim Carrey's brilliance from Morgan Stanley. Okay, so you're out at aeronautical engineering at Caltech. In the final trick question on the far CPA exam sophomore year, Jim Carrey is what does it mean if the bond markets worry, worry, hand wringing, worry and Google can do 100 year bond nine times oversubscribed. Jim, I've never seen this.

[Jim Carrey]

Well, I think it's, I think it's really a statement on the dispersion that's in the markets right now. So look, there's a lot of volatility that's happening, right? We understand what's happening in the equity markets. But then when we look at the publicly traded fixed income markets, as you're pointing out, the risk isn't necessarily being evenly distributed across all markets. And Tom, that's good news.

[Ad/Disclaimer Voice]

News.

[Jim Carrey]

Okay. Because whenever we go into these types of market events where there's a big repricing in a certain sector, in this case in software, the number one question is always about contagion. Is there contagion into other markets? And we're seeing firebreaks between the public markets and the private markets. And certainly equities are taking the brunt of this in some way. But we're not seeing broad based contagion. So I think if there's a silver lining around all of this, I think that's it.

[Host]

Jim, what do you make about this rotation? We've seen out of some higher growth areas, most notably software, into, I don't know, more value parts of the market, maybe even the small and mid caps that spooked a lot of folks who thought software and tech broadly was a good place to be.

[Jim Carrey]

Well, it's a great example of why you want to have a diversified portfolio. Right. So we've come off of a market over the past couple of years that's been highly concentrated. Mag 7, mag 7, mag 7. And people just forgot about the other 493. Right. In the S&P 500. And the point here is that if we get this rise in economic growth, this higher productivity, there should be a cyclical broadening of the markets. Look at the ISM data. ISMs are well above 50 right now. Even new orders are around 57. You've got the manufacturing above 52. You've got GDP growth which is still pretty reasonable. Jobs, you know, market seems pretty stable. So let's, let's keep our eye on the bigger picture and in the reality here is that I do think that the cyclical broadening of the markets is actually really healthy for, you know, for more diversified growth.

[Co-Host]

When you listen to your economics team, is the vector in goods inflation. Usually it's a disinflation and all of a sudden in the last six months. Jim. Karen, I got goods inflation and rising inflation. Is that going to reverse and get back to quote unquote normal?

[Jim Carrey]

No, I don't think it will. I think that we have gone through a period of time and this goes back to 2001 when China joined the WTO that goods inflation was relatively flat down.

[Co-Host]

Yeah.

[Jim Carrey]

And it was all about services inflation and everything else. So therefore overall inflation was able to stay low. Now we're in a different, different place.

[Co-Host]

Jim Carrey and into trouble this morning.

[Host]

Oh yeah, absolutely.

[Co-Host]

Do you, do you agree with the Posen orsag thesis of food 4% inflation?

[Jim Carrey]

I do not. I think the number is probably around two and a half to three. That's likely where we're going to stabilize. I don't think we're going to see below 2 for a while unless we see a recession.

[Co-Host]

That's brilliant. See how he did that? He's so trained by compliance. I mean he just absolutely Adam Posen out on Twitter this morning recapitulating the how we get to that worry of higher inflation. The, the, the, the, the release you will the reaction function is through maybe a higher wage which we really haven't seen yet. Well that's a bet. That's an outlier as many people have said to us. Jim Carrey and with us and we'll stay with us with Morgan Stanley Investment Management as we go to the nation's inflation report, usually midweek, it's on a Friday because of that brief government shutdown is well, we'll you know, give you the headline data folks, but then we dive into it and give you the nuances we can. On Bloomberg through the morning, Jim Carrey, this is Morgan Stanley. I go to a weaker dollar out there, but some real churn in the market as well. And we see it in Jim Carrey in space, as they say in the bond market. Jim Carrey and with a 10 year yield, 4.07% with a substantial move over the last two, three days. Can you at Morgan Stanley model a 3.99% 10 year yield?

[Jim Carrey]

Well, I mean it's certainly lower than what we would have expected it to be. It's really a question in terms of how we think the Fed starts to react to this. Does the Fed now start to see a clear Runway to cutting rates maybe more aggressively because inflation as we just saw is maybe coming down a bit, maybe, maybe a bit faster than many people are expecting. I'm still in the camp that there's maybe one more cut this year, possibly two. So and I think that's pretty much well in the price at this point as far as where the two year treasury is currently trading. And so I think it's going to be very difficult for the 10 year yield to stay below 4% for any material period of time unless you believe there's going to be a significant flattening and we don't and we think the curve's going to stay relatively steep around 60 basis points or so.

[Co-Host]

We welcome all of you across America. Bloomberg surveillance commercial free to the 9 o' clock hour. Michael Ball awaiting us as well. And Veronica Clark will join us from Citigroup here in a moment. Paul Sweeney with Morgan Stanley's Jim Carrey.

[Host]

Jim, this is a pretty eventful week for the Federal Reserve. Lots of data. It's a data rich week and I guess the takeaway is boy, we got a pretty solid labor market. We saw that on Wednesday and now We've got an inflation environment that continues to be pretty reasonable out there. Boy, the Fed could go either way here. They could sit on their hands or they could cut rates. How do you think they're going to interpret this week's data?

[Jim Carrey]

I think at the moment they're probably still leaning towards potentially one more cut this year if the inflation numbers are coming down. But we also have to understand that the unemployment rate did tick down from 4.4 to 4.3%. Now, could that be seasonal? Could that be an aberration? Maybe we need to see a couple of more numbers, which is why I don't think the Fed's going to do anything, you know, in the first quarter of this year or probably they're going to have to wait until the second quarter, maybe late second quarter. So I think the way the Fed is likely to interpret this is that we have inflation that seems to be stabilizing. That's good news. A labor market that also seems to be stabilizing. But we need a little bit more confidence in that. You brought this point up earlier. What about wages?

[Host]

Right.

[Jim Carrey]

So, you know, I think the big complaint out there, and I did a podcast on this, which was to make a $20 hamburger afford again. And my point was that, you know, the price of that hamburger is not likely coming down. What's going to make it more affordable is that incomes and wages need to start to go up, but they have to go up in a non inflationary way. And the way that happens, this is the magic trick that the economy does is through higher productivity. So higher productivity is the non inflationary speed limit on growth, meaning that you could have higher wages, better growth.

[Announcer]

But.

[Jim Carrey]

But that higher wages doesn't necessarily increase goods, inflation or anything like that. That's what productivity does. Right now the productivity numbers are accelerating higher. So it is likely if we get a recovery, that these incomes and wages can go up without creating the inflation. And that's what makes the $20 hamburger more affordable.

[Co-Host]

See how clear he does that? It's not as we learned that if you're at the Bowdoin Observatory in physics in February and it's 20 below zero and you get the telescope, it's clearer because it's cold air. That's how you get to think that clearly.

[Host]

And then he says that bad. And then he says, I got to get to California. To California.

[Co-Host]

Smart move tech as well, Jim Carrera and go write a report. He is brilliant at Morgan Stanley. We appreciate Mr. Karen's expertise here.

[Jim Carrey]

Should it stay or should it go. What if I mess it up? What if I have to pay taxes?

[Announcer]

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