Janus Henderson's Bernstein: AI Sell-Off Could Lower Small-Cap Borrowing Costs

Richard Bernstein, Janus Henderson's macro chief, believes the sell-off in AI-related stocks could reduce the cost of borrowing for small-capitalization companies. The tightening cycle at the Federal Reserve, he contends, is landing hardest on speculative names first.

Last Thursday, a prominent semiconductor ETF settled roughly 14% beneath its peak from October, a movement many took as a cautionary sign. Speaking to CNBC, Bernstein described the decline as a healthy repricing of capital across the market.

Could the AI Sell-Off Make Money Cheaper Across the Board?

Bernstein noted that capital markets had been offering easy terms to the AI data-center industry while leaving other businesses short of funds. If valuations shift across the broader market, the wider economy could benefit from cheaper borrowing, he argued.

Small caps, he noted, had advanced over several days alongside a drop in long-term rates. The CNBC anchor pointed out that they remained down on the week, despite those gains.

Bernstein referenced credit default swap spreads, a measure of default risk, as a signal that profitability is being questioned. Meanwhile, semiconductor stocks posted a 16-year record, declining for eight consecutive sessions, which has intensified the discussion over whether an AI bubble is deflating.

Can Firms Outside AI Sidestep the Fed's Intentions?

Bernstein dismissed the consensus among many investors that only one more rate increase is coming. The Federal Reserve had already implemented a quarter-point rise on September 16, its first such move since 2023.

He pointed to elevated readings in consumer, producer, and import prices as proof that inflation remains a real issue.

According to Bernstein, core import prices are climbing more quickly than core consumer prices, a dynamic that reverses a three-decade trend.

“The United States is now importing inflation.”

Richard Bernstein, global head of macro at Janus Henderson, told CNBC.

He observed that consumer staples and household goods manufacturers are faring slightly better, a pattern he interprets as recession fears taking hold in the market.

Taking a different view, economist Peter Schiff contends that the majority of U.S. stocks are in a bear market. Goldman Sachs data shows the median S&P 500 stock is 16% off its all-time high.

Bernstein admits that a broader market recovery might not extend to data centers or the tech sector. Nonetheless, he anticipates the long-term narrative will be shaped beyond the leadership of the past two to three years.