The U.S. Treasury building in Washington, D.C., on Friday, March 19, 2021.
Samuel Corum | Bloomberg | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
What you need to know today
Markets continued rallying
U.S. stocks rose Tuesday, boosted by falling Treasury yields and easing oil prices. Small-cap stocks, in particular, rose more than the broader market. Europe’s regional Stoxx 600 index soared 1.96% as travel stocks rebounded 3.9% from yesterday’s sell-off. Separately, European gas prices spiked because of a damaged gas pipeline between Finland and Estonia.
Samsung’s expected 78.7% plunge in profits
Analysts expect Samsung Electronics to report operating profit of 2.3 trillion Korean won ($1.7 billion) for the third quarter. That’s a staggering plunge of 78.7% year over year, dragged down by the firm’s semiconductor business, which is expected to post a loss of more than 3 trillion won for the quarter. Samsung will issue earnings guidance later today.
Fork in the road
The U.S. economy will grow 2.1% this year and 1.5% the next, predicts the International Monetary Fund in its latest World Economic Outlook. The IMF hiked its forecasts for the U.S. by 0.3 percentage points and 0.5 percentage points, respectively, from its July forecast. By contrast, the institution revised its euro zone forecast downward from 0.9% to 0.7% for 2023 and from 1.5% to 1.2% for 2024.
Alameda allegedly took FTX money
Caroline Ellison, the former head of Alameda Research and ex-girlfriend of FTX founder Sam Bankman-Fried, took the stand as the government’s star witness Tuesday. Ellison testified she and her ex-boss committed fraud. Alameda “took around $14 billion” from FTX customers, Ellison said. “I sent balance sheets to lenders at the direction of Sam that incorrectly stated Alameda’s assets and liabilities.”
[PRO] A recession causing a 12% slump?
Billionaire hedge fund manager Paul Tudor Jones thinks a recession will likely hit the U.S. soon, even if the economy manages to escape one this year. But when it hits, the stock market will probably slump about 12%, the founder and chief investment officer of Tudor Investment told CNBC.
The bottom line
In times of risk, investors turn to safe assets. And there’s no asset perceived as safer — while remaining liquid — than a U.S. Treasury bond.
Yields for U.S. Treasurys fell Tuesday as investors swarmed for safety amid the Israel-Hamas war. The 10-year Treasury yield dropped around 13 basis points to 4.657%, while the 2-year yield dipped below the 5% level to settle at 4.967%. As yields move inversely with prices, that means bond prices went up, driven up by demand.
Falling yields provided some relief to stocks. The S&P 500 rose 0.52%, the Dow Jones Industrial Average picked up 0.4% and the Nasdaq Composite advanced 0.58%.
Another bright spot was the small-caps Russell 2000, which climbed 1.14% for its fifth consecutive winning day, the first time it’s done so since July 13. That gives the index a 0.83% gain year to date — pretty remarkable if you remember it sank into the red for the year just over a week ago.
(Readers will notice this means both stocks and bonds moved in tandem — but their typically inverse relationship has been severed ever since the pandemic.)
“I think that move lower in yields has supported equity markets broadly. It may also be bringing relief to markets that perhaps there is some sort of peak in this rapidly upward moving yield in the last few weeks,” said Mona Mahajan, Edward Jones senior investment strategist.
Still, the Bank of England issued a rare warning on the valuation of U.S. technology stocks. “Given the impact of higher interest rates, and uncertainties associated with inflation and growth, some risky asset valuations appear to be stretched,” the U.K. central bank’s financial policy committee said Tuesday. And the high price premiums are “driven primarily by the continued strength in the U.S. tech sector,” the report added.
With September’s producer price index coming out later today, and the consumer price index Thursday, investors can better judge how much risk is worth taking — or if a safer asset like the U.S. Treasury bond makes more sense amid potentially higher rates and geopolitical upheaval.
