Fed is 'taking punch bowl away from the party' in the markets, says Janus Henderson's Bernstein

The Federal Reserve is entering a traditional tightening cycle that signals the end of easy liquidity, a shift often met with market denial. Richard Bernstein, Global Head of Macro at Richard Bernstein Advisors, observes that speculative tech and AI data center stocks are acting as "canaries in the coal mine" as the market begins a necessary broadening process. This rotation, while volatile, is fundamentally healthy because it lowers the cost of capital for the broader "old economy" which has previously been starved of investment. However, the Fed faces a significant challenge with "sticky" inflation, evidenced by rising core import prices that suggest the U.S. is now importing inflation for the first time in decades. This macroeconomic shift favors small and mid-cap stocks over the concentrated leadership of the past few years, as investors recalibrate for a higher-inflation environment and potential recessionary risks.