Technologies

These stocks have thrived during past rate-hiking cycles. Bank of America says buy them now

The bank said quality stocks should “continue to lead given the likelihood of more Fed hikes,” while value stocks have a chance to accelerate as profits grow.

Investors should consider rethinking their investment playbook following the Federal Reserve’s rate hike as expectations for a higher-for-longer rate environment intensify, according to Bank of America. Last week, the Federal Reserve increased interest rates by 25 basis points – its first interest rate hike in more than three years – bringing the overnight funds rate to a target range of 3.75%-4%. The hike was widely expected as Fed Chairman Kevin Warsh has been vocal about tackling stubborn inflation to achieve better price stability in the economy. Bank of America expects two more 25 basis point hikes this year. Long-term yields have risen to almost 20-year highs. The benchmark 10-year Treasury spiked more than 14 basis points to 5.116% on Wednesday. The increase was its largest one-day move in nearly 18 months, and its being driving by several factors: hawkish commentary from a top Federal Reserve official , high oil prices and robust economic activity. Higher yields tend to pose competition for stocks has investors may prefer allocating to relatively risk-free and higher yielding bonds rather than risk-on stocks. However, during Fed hiking cycles, Bank of America argued that quality stocks – those that have strong balance sheets and consistent cash flow – and value stocks – which are temporarily out of favor and are trading at a lower valuation – have been the best performing groups in the Russell 2000. BofA said quality stocks should “continue to lead given the likelihood of more Fed hikes,” while value stocks have a chance to accelerate as profits grow. The bank included a screen of Russell 2000 stocks that rank well on factors that have historically outperformed during hiking cycles including Madison Square Garden Entertainment, Peloton and Puerto Rico’s First Bancorp . It said these companies have proven they can generate strong revenue, earnings and cashflow despite the pressure of higher interest rates on their businesses. BofA said Madison Square Garden should perform well in a higher rate environment given the entertainment giant ranks highly on cash flow returns. Analysts have a buy rating on the stock. Madison Square Garden’s stock has climbed more than 45% so far this year. Likewise, First Bancorp should outperform in a rate hiking cycle given that banks tend to benefit from higher rates since they earn more on loans. In a similar light, the overall financial sector is a beneficiary of higher rates since they can charge more on mortgages, car loans and business debt. The Puerto Rico-based bank has gained 30% so far this year. Consumer discretionary name Peloton should also be poised to perform well as it’s top ranked on free cash flow and return on invested capital. The connected fitness company is in the midst of a turnaround effort and recently unveiled new treadmills, an AI-powered personal training assistant and new distribution channels. Peloton shares have fallen more than 20% year to date.

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Technologies

Oil prices dip as diplomatic hopes for Iran conflict rise

Oil prices fell on Friday after reports of U.S.-Iran talks in New York, though investors remain concerned about inflation and geopolitical tensions.

Oil prices dropped on Friday after a report emerged that U.S. and Iranian negotiators meeting in New York are exploring a step‑by‑step agreement to resolve the confrontation in the Persian Gulf.

November Brent crude futures slipped 1% to $93.66 a barrel, while U.S. West Texas Intermediate November futures fell 0.68% to $105.86 per barrel.

According to Reuters, a senior Iranian official said the most realistic way forward is for Tehran to permit shipping through the Strait of Hormuz if the United States ends its naval blockade.

The United States and Iran had previously agreed to this approach under a June 17 memorandum of understanding, but the arrangement soon broke down and fighting resumed. It remains unclear what distinguishes the present talks from earlier attempts.

Iran now seeks a return to the June 17 memorandum of understanding before the upcoming U.S. midterm elections, Iranian President Masoud Pezeshkian told media outlets on the sidelines of the United Nations General Assembly, according to Al Jazeera.

“It is understood that the two sides have been communicating via mediators,” said David Morrison, a senior market analyst at Trade Nation. Morrison added that investors remain uneasy about persistent inflation, rising energy costs, and the bellicose rhetoric exchanged by the U.S. and Iran at the UN General Assembly in New York.

Technologies

U.S.-China trade truce extended for two months, Bessent says, as Xi begins state visit

The deal, which was set to expire in November, will now be extended to Jan. 10, Bessent said, noting the need for Beijing to fulfill more deliverables.

The U.S. and China have extended a truce to keep tariffs lower for longer and rare earths flowing, U.S. Treasury Secretary Scott Bessent said Wednesday local time.

He was speaking on Fox News, as Chinese President Xi Jinping landed in Washington, D.C. for a state visit through Friday.

Xi and Trump agreed to a one-year trade truce at a meeting in South Korea last October. The deal, which was set to expire in November, will now be extended to Jan. 10, Bessent said. He added that Beijing needs to fulfill more deliverables.

Ahead of this week’s summit, many had expected the truce would be extended by six months or longer.

The U.S. and China should discuss their differences on trade issues on the basis of mutual benefit, without actively imposing restrictions, said Dong Shaopeng, senior researcher at Renmin University of China. He expected the trade truce could be continually improved and extended.

Chinese state media did not immediately note Bessent’s comments on the trade truce.

The two-month extension “suggests to me the U.S. is unsatisfied with China’s offers and wants to keep the heat on, with a bonus being it is more likely that Xi goes to the G20 in Miami,” said Scott Kennedy of the U.S.-based think tank Center for Strategic and International Studies.

Trump visited Beijing in May. The two leaders could also meet alongside an APEC meeting in Shenzhen in November, and the G20 summit in Miami in December.

However, Jens Eskelund, president of the European Chamber of Commerce in China, pointed out that simply extending the trade truce does not address challenges companies face, including the lack of a standardized approach to apply for rare earths export licenses.

Xi said in an official readout for his arrival that he is confident the visit will produce “fruitful results” for both sides. He said the two countries should be partners, not rivals, and work to build a stable relationship where competition and differences are managed. The readout did not mention tariffs, rare earths or artificial intelligence.

Footage streamed on China’s state broadcaster showed U.S. President Donald Trump and First Lady Melania Trump meeting Xi and First Lady of China Peng Liyuan at the foot of the Chinese leader’s jet. The video did not show the U.S. and Chinese leaders shaking hands — it focused on Xi and his wife shaking hands with two children presenting them each with bouquets.

After greeting Xi, Trump told reporters he would discuss the Iran war with the Chinese leader, among “many other subjects.”

Bessent met with Chinese Vice Premier He Lifeng in New York ahead of Xi’s arrival in the U.S. The two sides discussed setting up an alert system for AI incidents, according to Bessent.

While executives of major U.S. tech companies plan to join a summit dinner on Thursday, none of their Chinese counterparts are expected to attend.

Politburo Standing Committee Member Cai Qi and China’s top diplomat Wang Yi accompanied Xi, according to state media.

—CNBC’s Eunice Yoon and Ashlee Trujillo contributed to this report.

Technologies

CNBC Daily Open: Stability is on the menu as Trump and Xi start dinner

No one expects the two sides to settle every disagreement that they have, but Beijing and Washington seem committed to reducing tensions.

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Hello, this is Hui Jie writing to you from Singapore. Welcome to another edition of CNBC’s Daily Open.

Former Chinese leader Deng Xiaoping once said: It does not matter if its a white cat, or a black cat. As long as it can catch mice, it is a good cat.

The same idea might apply to Thursday’s summit between U.S. President Donald Trump and Chinese President Xi Jinping — few expect the two sides to settle every disagreement that they have, but from the two leaders’ opening remarks, Beijing and Washington seem committed to reducing tensions.

And that might be enough to make it a good summit.

What you need to know today

By the time you read this, both U.S. President Donald Trump and Chinese President Xi Jinping would have moved from the negotiating table to the dinner table.

The summit between the two leaders so far has seemed cordial, with Xi saying that U.S. and Chinese interests are “deeply intertwined” and that their competition “should be a healthy one and should be kept within bounds.“

Trump, on his part, mentioned that the two sides are “working to encourage a more balanced trading relationship,” and that the leaders plan to discuss “pressing issues” around security, technology and AI.

“The decisions we make in these areas today can promote peace and prosperity for decades and decades to come,” Trump added.

Even the dinner menu seemed reflective of the priorities of the meeting. The White House described the state dinner menu as a showcase of “American ingredients with subtle Chinese influence.”

Perhaps the goal will be — like the menu — to keep domestic priorities at the center, but permit a little influence from the other side.

Guests include a slew of high powered U.S. CEOs like Apple’s Tim Cook, Nvidia’s Jensen Huang and his wife, as well as Tesla’s Elon Musk and AMD’s Lisa Su. Meta and OpenAI were also among the other major U.S. tech companies represented.

Chinese business leaders were previously expected to attend the dinner, but a source briefed on the preparations told CNBC that they weren’t aware of any Chinese companies who have been invited to join Xi on his trip.

But for all the pomp and ceremony, China analysts broadly predict the leaders’ personal relationship and policy goals will result in a cautious summit that yields few major deliverables.

Some headway

That said, there was already some progress made before the two leaders sat down.

China’s Commerce Ministry confirmed that senior U.S. and Chinese negotiators held their first dialogue dedicated to artificial intelligence.

Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng discussed establishing a mechanism through which the countries could alert each other to AI-related risks.

Their talks also covered tariff reductions and an extension of trade arrangements reached last October.

Bessent said the countries had agreed to extend their truce until January, preserving lower tariffs and limits on Chinese export controls covering rare earths.

Bond markets worry

But while optimism abounded on the summit front, bond markets seemed to be looking elsewhere.

Treasury yields hit multidecade highs on Thursday as investors bet that another rate hike from the Federal Reserve would be coming.

Most notably, the 30-year Treasury bond yield reached a high of 5.501%, a level not seen since June 2004. The benchmark 10-year Treasury note yield climbed to its highest level since June 2007, at a high of 5.223%.

The surge in yields put pressure on stocks, with the Dow Jones Industrial Average sliding 0.31% to notch a third straight losing session. The S&P 500 and Nasdaq Composite were flat.

However, the losses were offset after Reuters, citing sources, reported that U.S. and Iranian negotiators in New York are considering a deal that would bring a phased end to the conflict in the Middle East.

The reported deal would see Iran reopen the Strait of Hormuz and the U.S. lift its economic blockade on Tehran.

Crude prices came off their session highs following the news, although prices remained elevated. Brent gained 2.5% to $105.69 a barrel, while West Texas Intermediate rose 2.3% to $94.30. Oil slipped in early Asia trade on Friday, with both benchmarks falling.

The reported deal does not mean that peace is definitely on the horizon. In Washington, the Senate narrowly rejected a resolution directing Trump to end the Iran war or seek congressional authorization to continue it.

The measure failed 49-50. Four Republicans joined most Democrats in supporting it, while Democratic Sen. John Fetterman voted against it.

And finally…

Global debt tops $365 trillion as economists sound alarm over ‘vicious cycle’

Ever-higher costs to service mounting debt loads pose a major risk to governments around the world, economists have warned.

Global debt rose by $10 trillion in the first half of the year to top $365 trillion, according to research published by the Institute of International Finance on Wednesday.

Debt has become a political issue, creating a “vicious cycle between elections and short-term quick fixes, and a long-term vulnerability as the marginal utility of higher debt diminishes,” the IIF warned.

— Jenni Reid

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