MARKET WRAPS
STOCKS: Stocks finished mixed as continued artificial-intelligence optimism was offset by inflation worries.
TREASURYS: Treasury yields were mixed, with long-term yields rising due to rate concerns.
FOREX: The U.S. dollar ticked up after Federal Reserve Bank of Richmond President Tom Barkin highlighted inflation risks.
COMMODITIES: Oil futures fell for the fifth straight session amid reports that Iran could reopen negotiations on the Strait of Hormuz.
HEADLINES
Trump Threatens to Annihilate Iran as He Lays Out Foreign-Policy Vision
at U.N.
President Trump labeled himself a man of peace while threatening to
"annihilate" Iran and wield American power against other nations, in a
speech at the United Nations aimed in part at selling skeptical voters on
his foreign-policy vision ahead of the midterm elections.
During his roughly 35-minute address Tuesday to the U.N. General
Assembly, Trump argued that his forceful interventions had made the world
a safer place.
"While others have talked, I have acted," he said. "While others have
spoken of peace, I have made peace. While others have ignored threats, I
have confronted them."
Fed's Barkin Says One Rate Hike May Not Be Enough to Tame Inflation
Richmond Fed President Thomas Barkin suggested more rate hikes could
be coming as the central bank focuses all of its attention on taming
inflation.
Speaking at an event in Baltimore, Barkin compared the Federal
Reserve's dual mandate of price stability and maximum employment to
raising two "very different kids."
The Federal Reserve chose last week to raise rates for the first time
in three years because inflation has become a "troublemaker" that the
central bank needs to address while the labor market "continues to get
good grades," Barkin said according to a prepared text of his speech.
Trump Weighs Diesel Export Ban as Fuel Prices Soar
President Trump said Tuesday he is considering restricting diesel
exports in an effort to curb soaring fuel prices, an idea that is quickly
gaining traction with more Republicans ahead of the midterm elections.
"I've called for that, too. I said, 'Let's not send out the diesel.'
We make a lot of diesel. It could have a little of an effect on regular
automobile gasoline, because when you do that, it's sort of a flow, a
balance. I've called for it-I've called for it with my people," Trump
told reporters during a meeting with Ukrainian President Volodymyr
Zelensky on the sidelines of the United Nations General Assembly in New
York.
Treasury Secretary Scott Bessent said the U.S. is "examining" a diesel
export ban and "whether it's feasible in the overall refining capacity
and whether a full or partial ban would work."
Investors Demand Highest Yield at Two-Year U.S. Treasury Auction Since
2024
The U.S. Treasury on Tuesday auctioned $69 billion in two-year notes
paying the highest yield in more than two years.
The notes sold at a yield of 4.787%, the highest since the May 2024
auction, when it was 4.917%.
The auction comes as investors brace for rising interest rates after
hawkish communication from Federal Reserve officials followed the central
bank's first rate increase since 2023 last week.
OpenAI Urges Washington to Lead Global Effort to Create AI-Safety
Standards
OpenAI is asking the U.S. government to lead an effort with other
countries to develop global safety and security standards for building
cutting-edge artificial-intelligence systems.
In a proposal published Monday, the company suggested that countries
worldwide should set common measures for evaluating forthcoming
self-improving AI systems and establish secure channels to share emerging
threats.
The U.S. Center for AI Standards and Innovation could work with the
emerging network of AI safety institutes around the world-such as
existing groups in the U.K., France, and Singapore-to create the
standards, the company said.
Shopify to Use Meta's Muse for Agentic Checkout
Meta Platforms and Shopify are teaming up, with plans to allow the
social-media company's personal artificial-intelligence agent to complete
purchases on behalf of users with the e-commerce platform's roster of
stores.
Shopify-whose platform lets businesses sell, manage orders and process
payments online-said the integration with Meta's Muse would be available
with Shop Pay, its accelerated, one-tap checkout service that stores
buyers' shipping and billing information.
The move aims to offer an "easy and delightful way to shop and check
out with Muse," Shopify's Chief Executive Tobias Lütke said in a Monday
post on X.
TALKING POINT Market Strategist Julie Biel: The AI Craze Is Making These Quality Stocks More Affordable Quality companies, with low debt and solid returns, have historically traded at healthy premiums. But as investors flock to high-powered artificial-intelligence names, something interesting is happening, says Julie Biel, chief market strategist and portfolio manager at Kayne Anderson Rudnick Investment Management: Those traditional businesses have increasingly become available for more-reasonable prices. "I think that's a function of the excitement, particularly in small-caps, on more speculative companies and businesses that are directly tied to AI," says Biel. "Our nice little industrial companies, our nice little financial businesses, just don't have the same sex appeal."
Speaking with Barron's Advisor, Biel weighs in on the rebound in software-as-a-service (SaaS) stocks following fears of an AI-pocalypse. And she argues that companies using AI to improve their operations may end up being the winners, rather than the upstream AI companies selling the core models, computing infrastructure, or specific AI services. SharkNinja, anyone? And she says "good deadlock" resulting from the November election would be a dream scenario, at least for markets.
Long-term bond yields are at nearly 20-year highs, and the Fed is raising short-term rates for the first time in three years. What are the implications of this moment for stocks? It's an important moment because there is a recognition that things have changed. We have a very different kind of Fed. We should expect more volatility in interest rates as a result of this transition away from specific forward guidance, and we're not even getting reaction-function information [rules the Fed uses to react to economic changes]. That's important for stocks in that it probably makes people think a little differently about risk and about how many businesses they really want to own that don't yet have earnings. That's what we saw in 2022 after 2020 and 2021 when we had tech IPOs and investors pushing management teams to be unprofitable so they could grow as quickly as possible. Then all of a sudden it was like: Oh no, what if interest rates are going up? We saw a real reset as a result. I don't think this is going to be anywhere near as significant, but higher interest rates inherently make it harder for lower-quality businesses to do as well. This isn't a period where a rising tide lifts all boats. It really starts to matter if you have a differentiated business with a good balance sheet, because it creates differentiation. As an investor, you really have to roll up your sleeves and recognize that this is a more nuanced market than it had been.
Software-as-a-service stocks as a group have bounced back following fears that they were going to be eradicated by AI. What do you see as the lesson in that rebound? For many years, portfolio managers could rely on software names as businesses with high levels of recurring revenue. Even though they were a little bit on the pricey side, they had high returns on equity, durable earnings, and good growth. It's hard to find businesses that have a similar level of durability, so people felt comfortable owning a good amount of those stocks. It changes the dynamic when you're suddenly selling your software names because you now have more cyclicality in your business. So I think this kind of bounceback is a recognition of a couple things. It's so much easier now to produce software, but does that necessarily mean that companies will? I think that's a question mark.
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