Stocks close higher for third consecutive day, Nasdaq adds 2.2% ahead of Big Tech earnings

You'd be forgiven for thinking the REITs were technology, at least for a day.

On a percentage basis, real estate investment trusts led today's third straight up move in the S&P 500. Treasurys gave a big lift, as the 10-year yield tumbled to 4.08% from 4.25%. If Treasury yields have peaked, are peaking or will soon peak, the REITs' cost of capital declines, the pressure on cap rates eases and their dividend payouts grow more attractive relative to risk-free Treasurys.

As a result, the S&P 500 Real Estate Index climbed 3.94% Tuesday, trailed by Materials jumping 2.5%, Communication Services gaining of 2.4%, Consumer Discretionary adding 2.3% and Utilities (another inverse rate play) rising 2.0%.

The REITs Index was certainly beaten up enough to deserve a bounce. Its 31% loss in 2022 is exceeded only by Communication Services' 35% plunge.

Inside the REITs Index, ARE +5.6%, +AMT +5.5%, VTR +5.3%, EXR +5.1%, WELL +4.9%, led the move higher.

Where was the S&P 500 Tech Index on Tuesday? Sixth out of 11 major industry groups, and up 1.9%.

— Scott Schnipper

The major indexes ended the day up in a first since last month.

Nasdaq was the biggest gainer, up 2.2% to land at 11,199.12.

The Dow ended up 337.12 points, or nearly 1.1% to close at 31,836.74. The S&P 500 added 1.6%, ending at 3,859.11.

Tuesday marked the first time a three-day rally has occurred since Sept. 12.

— Alex Harring

John Waldron, Goldman Sachs' president and chief operating officer, said inflation is the biggest threat companies are grappling with right now.

"Inflation is the single biggest issue we all have to tackle right now," Waldron said on CNBC's "Power Lunch." He said wage pressure and increasing commodity prices are particularly challenging and could eat into companies' margins.

On the U.S. consumer, Waldron believes Americans are not spending less but they are substituting.

— Yun Li

It's "all eyes" on technology companies this week as giants including Meta, Microsoft, Apple and Amazon are set to report, said Paul Zemsky, chief investment officer of Voya's multi-asset strategies and solutions division.

And he said as long as they meet already-cut expectations, there could be upside.

"If they report anywhere in line with expectations – if they don't disappoint – I think we could see higher prices by the end of the week," he said.

— Alex Harring

William Blair named Microsoft a top pick heading into the software giant's third-quarter earnings results Tuesday after the bell.

Analyst Jason Ader reiterated an outperform rating on Microsoft, and called it a top pick, saying that the software company is well positioned even as enterprise infrastructure spending "becomes less discretionary and more strategic."

"Notwithstanding slowing PC demand, Microsoft is still well aligned with customer prioritization on cloud and security, as well as cost-conscious customers looking to rationalize spending through bundles and suites," Ader wrote in a Tuesday note.

The analyst said that persistent inflation is spurring consumers to consolidate their enterprise software tools for services such as email security and workplace collaboration, which the analyst expects will help Microsoft.

Continued resilience in cloud and security spending, which remains a top priority for customers, would further boost Microsoft's Azure business, according to the note.

"Particularly with the third quarter representing a new fiscal year for Microsoft, VARs noted that these budgets had been replenished healthily, adding continued fuel to the cloud migration fire," read the note.

— Sarah Min

The three major indexes continued trading up, despite cooling off intraday highs, as market enters its most decisive hour.

The Dow added around 270 points, which comes out to about 0.9%. It was trading up more than 300 points at multiple times during the session.

The Nasdaq sat at 1.9% after breaking the 2% threshold earlier in the day. The S&P 500 was just a few points off its intraday high, trading up 1.4%.

— Alex Harring

The European Central Bank is set to meet this week, as the central bankers across the Atlantic try to fight inflation against a worse economic growth backdrop than the U.S.

However, Europe's growth concerns and the recent turmoil in the British bond market doesn't mean that the ECB is about to pivot from its hiking process, said Morgane Delledonne, head of investment strategy for Europe at Global X.

"I think the ECB and the Bank of England are likely to be more aggressive ... or at least as aggressive as the Fed. Going forward, there won't be a rate differential to drive more appreciation of the dollar," Delledonne said, predicting a 0.75 percentage point rate hike from the ECB this week.

The dollar should stabilize and even fall from here, Delledonne said, which could be a boost to U.S. companies that have high exposure to international revenue.

The euro was up 0.8% against the dollar on Tuesday but is still just below parity.

— Jesse Pound

After reducing cycle exposure this year, hedge funds are now considered overweight defensives compares to cyclicals for the first time since October 2021, according to Bank of America.

The shift came as hedge funds moved away from materials, industrials and energy, the bank said in a note to clients Tuesday.

Within the basket of inflation beneficiaries, mutual funds are 34% underweight compared to long-only mutual funds' 15%

— Alex Harring

Advancers handily outpaced decliners Tuesday, with roughly 2,550 New York Stock Exchange-listed names trading higher to just 497 sliding. In other words, about five NYSE-listed names advanced for every decliner.

— Fred Imbert

Equity investors in Elon Musk's purchase of Twitter have received paperwork from his lawyers as part of the closing of the deal, CNBC's David Faber is reporting.

That is another sign that Musk, who has gone back and forth on his commitment to purchasing the social media giant, is on track to close the deal Friday. He agreed to buy the company earlier this month, days before he would have had to go to trial.

Twitter was trading up 2.6% Tuesday. Musk plans to take the company private.

Shares of Tesla, Musk's electric vehicle company, were up 3.6%.

— Alex Harring

The market's current rally is not enough for Nick Baron, senior investment specialist at Brainvest, to tell clients to buy in.

He said others are clinging to individual pieces of data as they come for optimism that the Federal Reserve will change course on rate hikes. But Baron is telling investors to hold steady, saying it's better to miss the first few moves upward than risk buying in only for stocks to plummet.

"I think this rally might be a head-fake," he said, referring to the term used to describe when market performance is quickly followed by a move in the opposite direction.

Baron described the current rally as a "little bear market rally with some optimism that maybe the Fed is going to to pause or slow rate hikes sooner than they actually will."

— Alex Harring

These are the stocks making the biggest headlines midday:

• Xerox: Shares plunged 15% after the seller of print and digital document products and services reported disappointing earnings and cut its full-year revenue guidance. Xerox CEO Steve Bandrowczak said in a release that "profitability remains challenged by persistently high inflation and continued supply chain constraints."
• Logitech: The computer peripherals maker jumped 11.8% after Logitech reiterated its full-year guidance, which was lowered in July. Logitech has struggled with weaker demand after a boom in sales during the height of the pandemic.
• Stem: The stock rose 12.3% after UBS initiated Stem as a buy, saying that AI-driven energy storage company is a market leader that will get a boost from the Inflation Reduction Act.

Check out the full list here.

— Sarah Min

Over the weekend, Tesla announced that it would cut prices of its electric vehicles in China, sending shares lower.

"Tesla's prices in China are now only 0-5% higher than they were a year ago; in the US, by contrast, prices are 11%-27% higher," wrote Toni Sacconaghi of AB Bernstein in a Tuesday note. "We also note Tesla offered price discounts in China at the end of Q3 and has seen order lead times for its cars in China fall dramatically."

The price decreases seem to be driven mostly by competition, according to Sacconaghi. While China's electric vehicle market grew by 126% on the year through September, Tesla's growth in the country is only up 55%. In addition, its share of the Chinese market is only 11%, down from the 18% peak in 2020.

"China's EV market is *much* more competitive than any other country in the world," Sacconaghi said. "We count 106 (non-micro EVs) models in China vs. just 26 models in the US. Notably, new EV models are driving sales growth/share gains, while older EV models (5+ years) are losing share."

Over time, the worry is that upcoming competition in the U.S. could have the same impact to Tesla as the uptick in competitors in China.

"Hypothetically, if Tesla's EV share in the US were to decline from 70% to 50% over the next 3 years, Tesla's growth rate would be impacted by ~3-5% per year," he said. "Moreover, while do see demand creation levers for Tesla in the US (e.g., a lower-priced SR Model Y), most involve a potential trade-off in margins."

Tesla's stock has already underperformed due to waning demand. Going forward, Sacconaghi sees the risk/ reward becoming incrementally favorable, but worries that Tesla "may be increasingly faced with trading off margins for growth as EV competition increases globally."

—Carmen Reinicke

The Dow and Nasdaq continued their upward ascent Tuesday as the markets continued to rally.

The Dow briefly reached 300 points up, which translates to an increase of 0.9%, around 12:20 p.m.

At the same time, the Nasdaq sat slightly above 2%.

— Alex Harring

Tuesday's chilled consumer confidence data from The Conference Board is casting doubt on if or by how much the Fed will raise interest rates after November's meeting, according to Jeffrey Roach, chief economist for LPL Financial.

"The Federal Reserve will likely hike rates by 0.75% in November to cool inflationary pressures but the magnitude at the December meeting is a bit of a wild card since strong consumer demand will keep upward pressure on prices," he said following the release on the data. "The biggest risk is the unknown lagged effects from the Fed's cumulative tightening and the economy may not feel the full effects until next year when recession risks are high."

— Alex Harring

UBS says investors should get in on this under-the-radar energy storage stock expected to rally more than 60% thanks to the Inflation Reduction Act.

Analyst Jon Windham called the stock a "market leader" in the space, noting that the company should experience increased profitability and benefit from IRA tax credits over time.

CNBC Pro subscribers can read the full story behind the call here.

— Samantha Subin

At midday, the S&P 500 and Nasdaq Composite were both up more than 1% — building on the strong gains seen in the previous session. The 30-stock Dow also popped more than 250 points.

— Fred Imbert