Global Ultrawealthy Investors Await a Bigger Correction: Park Shin-young’s Pre-Market Brief

1. Trump Says He Is Still Considering Diesel Export Ban, but Warns It Could Lift Gasoline Prices

President Donald Trump said he is still considering a ban on diesel exports to lower surging diesel prices. But he struck a more cautious tone than in recent days, acknowledging that blocking exports could also push up gasoline prices.

Asked in the Oval Office on Sept. 30 whether he had decided on a diesel export ban, Trump replied, “We’re still thinking about it.” He said such a move could help diesel but raise prices for other products. Gasoline, in particular, appears vulnerable. “Gas prices could go up a little and diesel prices could come down a little,” he added.

The reason diesel export restrictions could lead to higher gasoline prices is that refineries produce multiple petroleum products together. When refiners process crude, they simultaneously produce gasoline, diesel, jet fuel and LPG. They can adjust product yields to some extent, but there are limits to sharply reducing diesel output while increasing gasoline supply.

US refiners have maintained high utilization rates not only to meet domestic demand but also to supply diesel to Europe and Latin America. The US has long served as a major exporter of refined fuels, supported by large-scale refining capacity and abundant crude supply. Revenue from overseas sales gives refiners an incentive to buy more crude and keep plants running at high rates.

As a result, curbing diesel exports could hurt refinery profitability and reduce crude throughput. That would also cut supplies of gasoline and jet fuel produced alongside diesel. In effect, a policy meant to lower diesel prices could tighten US gasoline supply and increase upward pressure on pump prices.

Trump said crude exports through the Strait of Hormuz are recovering and that the US is in “a very good position.” Energy Secretary Chris Wright said US refiners are operating at record levels and that additional diesel supply from Europe is expected. He said diesel prices could fall meaningfully in the coming weeks. At the same time, he acknowledged that the global diesel market remains tight because of conflict involving Russia and the Middle East, as well as supply disruptions tied to China.

2. US 10-Year Treasury Yield Hits Highest Since 2002 as Cheap-Money Era Faces New Test

A rise in oil prices has revived inflation concerns and prolonged the global bond selloff. The yield on the 10-year US Treasury climbed to its highest level since 2002.

On Oct. 1, the 10-year Treasury yield rose as much as 6 basis points to 5.34% intraday. That moved it above its 2007 high. The 30-year Treasury yield also touched its highest level this week in 24 years.

As higher oil prices tied to war in the Middle East ripple through the global economy, investors are wagering that major central banks may need to raise interest rates further. Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said inflation remains too high. He described the labor market as “pretty okay” but not excellent.

Heavy government borrowing and rising funding demand for AI infrastructure are also pushing market interest rates higher. Governments are issuing Treasuries to cover fiscal deficits, while technology companies are selling large amounts of corporate debt to fund AI data centers, semiconductor factories and power-grid investment. With governments and companies competing for limited investor capital, borrowing costs are rising more broadly.

Long-term yields cannot be explained by the Fed’s short-term policy outlook alone. Two-year Treasury yields are more sensitive to the Fed’s benchmark rate and the expected policy path over the next one to two years. By contrast, 10- and 30-year yields are shaped more by long-term inflation, fiscal deficits, Treasury supply and the economy’s long-run growth rate.

Investors also demand separate compensation for holding long-dated bonds. That is known as the term premium. Because money is locked up for a long period and future inflation, growth and government finances are uncertain, investors require additional yield. The recent rise in term premium is being read as a sign of growing anxiety over long-term prices and fiscal conditions.

Treasury supply is rising, while demand from major traditional buyers is softening. The Fed and other major central banks are reducing their bond holdings through quantitative tightening. Foreign central banks, including China’s, also have stronger incentives to diversify reserves into gold, euros and yen rather than remain concentrated in dollar assets.

Still, higher Treasury yields are not necessarily a purely negative signal. They can offer an opportunity for bond investors seeking higher income, and part of the increase may reflect an economy strong enough to withstand elevated rates. The key question is whether governments and central banks can maintain credibility that they will keep fiscal deficits and inflation under control.

3. ‘A Bigger Correction Would Have Been a Buying Opportunity’

The S&P 500 is sitting about 1% below the record high it reached in August. But a closer look beneath the surface shows weakness across much of the market. While megacap technology stocks such as Alphabet, Microsoft and Meta Platforms have supported the index, the foundation of the rally has narrowed quickly.

About 75% of S&P 500 constituents fell in September. In other words, the index has remained near its peak even as leadership has become highly concentrated.

Chris Toomey, a managing director at Morgan Stanley Private Wealth Management, said market breadth has started to narrow materially, with flows concentrating in high-quality stocks that carry heavy index weightings. Investors are rotating out of the high-beta names that led the earlier rally and into relatively defensive large-cap blue chips.

Morgan Stanley said the share of S&P 500 stocks trading above their 200-day moving average has dropped to 49% from about 75% during the summer. The index may still look resilient thanks to megacap strength, but technical trends across individual stocks have weakened broadly.

Even so, Citi Wealth, whose main clients include global ultra-high-net-worth investors and family offices, said a deeper correction would actually have created a buying opportunity. Genie Sun, head of portfolio advisory at Citi Wealth, said the declines and pullbacks seen in equities this year have been surprisingly shallow, and that the price adjustment many investors feared has not yet fully materialized.

“It would have been fine if the correction had been a bit larger,” she said. “Corporate fundamentals are very strong and earnings growth is solid, so a bigger decline could have been a good buying opportunity for long-term investors.” Even if indexes fall in the short term, as long as corporate earnings and economic fundamentals hold up, a pullback would represent a process of relieving valuation pressure rather than the end of the uptrend.

Citi Wealth is maintaining its overweight position in equities heading into the fourth quarter despite elevated market and Treasury yields. Its view is that rising rates alone are not enough to conclude stocks must fall. More important is why yields are rising and whether that increase is actually damaging consumption, business investment and corporate earnings.

Sun said the recent rise in yields has been driven more by higher real rates than by a renewed increase in inflation expectations. Real rates, defined as nominal yields minus expected inflation, are closer to the actual financing costs felt by companies and households. Higher real rates can weigh on stocks in the short term, but in this case they also signal that expectations for US economic growth remain firm.

“Even if rates rise, the two forces can offset each other if growth is very strong,” she said. “If you look at actual earnings reports, companies are overcoming the impact of higher rates much better than expected.” If profits continue to grow and consumer spending and capital investment remain intact, the negative effect of higher discount rates on equities can be offset to a significant degree.

Citi Wealth said consumer spending and corporate capital expenditure have held up relatively well so far, and there are no clear warning signs yet that higher rates are seriously undermining growth or earnings. Even with mortgage rates above 7%, the economy has not slowed as sharply as in past cycles, helped by structural factors such as a housing shortage, strong employment and relatively healthy household balance sheets.

4. Buyers Step In on Every AI Dip as ‘AI Put’ Replaces Fed Put

Strong investor enthusiasm for artificial intelligence is one reason US stocks have not broken down despite high Treasury yields, Bank of America said. The market is now relying more on an “AI put” than on support from Fed policy, the firm argued.

In market parlance, a “put” refers to a backstop that supports stock prices when markets fall. In the past, investors believed the Fed would cut rates or inject liquidity when markets wobbled. That became known as the “Fed put.”

Now, even with the Fed maintaining a tightening stance, investors are returning to buy AI-related stocks whenever they fall because of fear of missing out on the next leg of the AI rally. Bank of America said AI-driven FOMO is dominating macroeconomic risks and triggering aggressive dip-buying during every correction.

Market internals, however, are weak. Rate-sensitive small- and mid-cap stocks have declined, and financial and utility shares have also underperformed. But strength in AI-related megacap technology names such as Nvidia has prevented a broader decline in the indexes.

According to Dow Jones Market Data, the combined market value of the top 20 gainers in the S&P 500 has risen by $1.7 trillion since Aug. 31. By contrast, the other 480 stocks in the index have lost about $1.9 trillion in market capitalization. That suggests a small group of AI megacaps is propping up the market while breadth deteriorates.

Still, with more than $1 trillion already poured into AI infrastructure, the next test is whether that investment can be converted into actual profits. Technology-sector analysts expect demand for AI services to surge, but analysts covering the broader companies that will have to pay for those services are forecasting much slower growth.

Unlike the Fed put, the AI put is not an institutional backstop guaranteed by policy. It depends on investor psychology. If confidence in AI investment and corporate earnings starts to crack, long-standing risks such as high interest rates, inflation and fiscal deficits could come back into focus all at once, deepening any stock-market correction.

5. Netflix Flags Slower Growth as US Viewing Time and Ad Monetization Emerge as Key Tests

Netflix co-Chief Executive Officer Ted Sarandos said the company is not growing as quickly as expected and is pursuing strategies to accelerate growth. Slowing viewing time in the US, a lack of major hit titles and the pace of advertising monetization have emerged as key challenges.

Speaking at Bloomberg’s Screentime conference in Los Angeles on Sept. 30, Sarandos said, “Overall, Netflix is not growing as fast as I want it to.” He said the company is working to speed that up.

Netflix’s global viewing and engagement metrics rose 2%, and revenue grew at a double-digit pace in every region. But investors are watching viewing trends in the US more closely because the trajectory of the company’s most important market carries outsized weight.

Some estimates show average daily viewing time for US Netflix subscribers in the first half of this year was 1.6 hours. Adjusted for the password-sharing crackdown and subscriber mix, that was down about 8% from the same period in 2023.

To respond, Netflix is expanding beyond films and TV series into live sports and events, video podcasts and content from popular YouTube creators. It is allocating about 5% of its $20 billion annual content budget to live programming.

The strategy is intended to increase time spent on the platform and expand advertising revenue. But rising costs for sports rights, live programming, content production and marketing could weigh on profit and cash flow in the short term.

The ad-supported tier is also a core growth driver, but the pace of monetization has fallen short of market expectations. Netflix is targeting $3 billion in ad revenue this year. In the most recent quarter, free cash flow fell 32.7% from a year earlier to $1.53 billion as content investment increased.

The absence of major hit titles is another burden. In the US this year, the service has been viewed as lacking the kind of blockbuster series that can drive both new subscriptions and repeat viewing, such as Stranger Things, Squid Game and Bridgerton.

Netflix is also looking to wider theatrical releases and AI for a breakthrough. Generative AI is being used in post-production for about 300 titles, including pre-visualization, visual effects and the creation of complex scenes. Ultimately, Netflix needs to prove it can produce another major hit that restores US viewing time and turn spending on ads, live programming and AI into actual profit growth.

Park Shin-young, New York correspondent nyusos@hankyung.com