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

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.

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)

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)

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

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.

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.