Stocks rise ahead of U.S. midterm elections, Dow closes more than 400 points higher

Stocks rallied Monday as investors looked ahead to a packed week with congressional midterm elections and key inflation data on deck over the next few days.

The Dow Jones Industrial Average traded higher by 423.78 points, or 1.31%, to 32,827. The S&P 500 gained 0.96% to 3,806.80. The Nasdaq Composite rose 0.85% to 10,564.52, after trading between gains and losses earlier in the session.

All three major averages notched a second straight day of gains.

— Sarah Min

The S&P 500 will bottom in the second quarter of 2023 at about 3,200 – about 15% below where the index closed last week.

2023 will likely have a period of economic tightening to get there as "disinflation" occurs, the firm said. But it should shoot back up the 3,900 points by the end of the year, which would be about 120 points higher than where it ended last week.

There are stocks poised to outperform as inflation comes down, while others stand to do worse.

CNBC Pro subscribers can see UBS' picks.

— Alex Harring

Stocks hit session highs during afternoon trading Monday, with the Dow Jones Industrial Average rallying 423 points, or 1.3%, at around 2:30 p.m. ET. The S&P 500 was up 0.9%. The Nasdaq Composite was up 0.8%, despite trading between gains and losses earlier in the session.

— Sarah Min

Stocks rose Monday with the Dow Jones Industrial Average leading gains and the S&P 500 close behind. Each index was lifted by two outperforming sectors - retail trade and energy.

Retail trade is leading the Dow higher, with Walgreens Boots Alliance's 4% jump on news that it would spend $3.5 billion to support VillageMD's acquisition of urgent care provider Summit Health. The company also raised its 2025 sales goal for U.S. health care business. Home Depot and Walmart also rose.

The S&P 500 was boosted the most by energy stocks outperforming due to a spike in the price of natural gas. The sector rose nearly 2%, with the top performer EQT gaining more than 8%. Shares of Occidental, Marathon Oil and EOG Resources also gained.

—Carmen Reinicke

A pause from the Federal Reserve may not be the bullish signal that investors hope it will be, according to Barclays.

While a dovish pivot has historically been a positive sign for stocks, Barclays strategist Venu Krishna said in a Monday note that it can be a bearish signal when it coincides with a recession that's already underway.

"Throughout the Great Moderation, the Fed has been able to pause its tightening campaign well before the onset of a recession, often paving the way for new equity market highs before the eventual economic downturn," Krishna wrote.

However, while reviewing data going back to the 1950s to find circumstances comparable to the current time period, the strategist found that the lag between rate hikes and recession "shrink," and often overlap, when the Fed was combatting high inflation.

"If a recession is at hand by the time the last hike of a cycle is pushed through, the pause is typically a bearish signal, not a bullish one," Krishna added.

— Sarah Min

A group of stocks slipped to their lowest levels in a year on Monday even as the broader market fought to hold onto gains ahead of the November 8 midterm elections.

Tesla shed 4.3% to hit the lowest level for the electric automaker stock since June 2021. The company, led by Elon Musk, has shed more than 43% year to date.

Here's the other names that hit 52-week lows on Monday.

• Expedia trading at lows not seen since May, 2020
• Invitation Homes trading at lows not seen since Mar, 2021
• Public Storage trading at lows not seen since May, 2021
• Extra Space Storage trading at lows not seen since Jun, 2021
• Generac trading at lows not seen since Aug, 2020
• Dominion Energy trading at lows not seen since Mar, 2020
• Catalent trading at lows not seen since Mar, 2020
• Tyler Technologies trading at lows not seen since Apr, 2020
• SVB Financial trading at lows not seen since Jul, 2020
• Assurant trading at lows not seen since Oct, 2020
• Lincoln National trading at lows not seen since Oct, 2020
• Warner Bros. Discovery trading at lows not seen since May, 2009

—Carmen Reinicke, Gina Francolla

Here are three names making the biggest moves midday:

• Carvana — Carvana tumbled more than 15% with trading briefly halted at one point due to volatility. The sell-off comes after the used-car seller's worst day ever on Friday, when the company had an earnings miss and Morgan Stanley pulled its rating and price target for the stock.
• Meta Platforms — Facebook owner Meta jumped more than 5% following a Wall Street Journal report over the weekend saying the company could start mass layoffs as soon as Wednesday. The layoffs could impact thousands of employees, according to the Journal.
• Redfin — Redfin shares shed 15% after being downgraded by Oppenheimer to underperform from perform. The investment bank said the online real estate company's business model is flawed.

For more movers, check out the full story.

— Michelle Fox

Fairlead Strategies' Katie Stockton said the stock market currently has some positive momentum, noting that the S&P 500 is no longer overbought.

"This should help foster a recovery this week," Stockton added. "Initial resistance remains near 3914, with secondary resistance at the 200-day MA."

Stockton's comments come ahead of the U.S. midterm elections, which are slated for Tuesday.

— Fred Imbert

More than half of the 11 sectors in the S&P 500 were in the green during midday trading Monday. Energy, communication services and health care led gains, each up 1.5%, 0.8% and 0.6%, respectively.

Meanwhile, the utilities and consumer discretionary sectors were lagging the broader market index, down 2.6% and 1.5% each.

— Sarah Min

Ubiquitous use of mail-in ballots and the possibility of run-off elections could mean no clear answer as to if Democrats will retain control of both the House of Representatives and Senate on Election Day.

Glenmeade's investment strategy team said that could create short-term confusion among investors, but does not expect large market reaction if results are still coming in after the day of voting technically ends.

Mail-in ballots can cause delays in final tallies because some jurisdictions do not allow them to be counted before Election Day, creating a backlog for poll workers.

"The possibility of no immediate resolution on election night could lead to uncertainty in the nearterm but is unlikely to prove overly disruptive beyond that," said Jason Pride, the firm's chief investment officer, in a note to clients.

In the same note, Pride said it is likely the federal government will be "gridlocked" following the midterms. He said that usually means better performance in the S&P 500 because it is typically associated with government inaction and less volatility due to policy.

Keep up with CNBC's live election coverage here.

— Alex Harring

The price of natural gas is climbing on Monday, boosting a key energy sector ETF.

• Oil & Gas ETF (XOP) is up 2.7% on pace for best day since Oct. 13 when the XOP gained 3.66%
• Today's XOP leaders dominated by natural gas names such as Comstock, Southwestern, EQT, Antero, Range Resources, PDC Energy and more all up 5% or greater so far today
• Natural gas futures hit a fresh high of 7.153 the highest level since Oct. 6 when they traded as high as 7.188. The move continues Friday's gains on forecasts for colder weather in mid-November

— Jesse Pound, Gina Francolla

Strategas technical strategist Chris Verrone said that, "more and more, this is turning into the 'anything but' market… anything but Tech; anything but Communications, etc."

He pointed out that the "weakness in both sectors is now well known, but serve as a reminder that the big mistakes in this business happen below downward sloping 200-day moving averages," citing names such as Salesforce and ServiceNow.

"Even at the very top of the market, AAPL and TSLA are both now burdened by downtrends today as well," Verrone added.

— Fred Imbert

Wolfe Research's Chris Senyek does not think the bottom is in yet for stocks.

Despite deteriorating fundamentals, the S&P 500 is trading very close to its level immediately before the Federal Reserve's June meeting, said Senyek, the firm's chief investment strategist.

Compared to June, the S&P's forward price-to-earnings multiple is higher, earnings expectations have fallen, core inflation is hotter, the central bank's terminal rate expectation has jumped and the yields across the curve have risen, he wrote in a note Monday.

Yet the Cboe Volatility Index, which is known as the VIX and gauges the level of fear on Wall Street, is lower than it was in June. It closed at 24.6 on Friday, compared to 34 on June 13, he said.

"Investors should be taking Jay Powell at his word. Despite seemingly never-ending 'pivot' hopes, the Fed Chair stuck to his Jackson Hole script last week — they're going to tighten until the committee sees definitive signs that inflation is on a path back to 2%, even if it sparks a recession," Senyek said.

— Michelle Fox

Of the six names in the S&P 500 that breached new 52-week highs during Monday trading, four names hit all-time highs. Notably, McDonalds is the one Dow component that is trading at all-time highs going back to its IPO in April 1965.

Meanwhile, two stocks hit new lows including insurance company Lincoln National and media conglomerate Warner Bros. Discovery.

New 52-week highs: 

• SLB (SLB) trading at levels not seen since Oct, 2018
• Diamondback Energy (FANG) trading at all-time highs back to its IPO in Oct, 2012
• PACCAR (PCAR) trading at levels not seen since Feb 2021 but off highs of session
• Principal Financial (PFG) trading at all-time high levels back to its IPO in Oct, 2001 but off highs of session
• Raymond James Financial (RJF) trading at all-time high levels back to its IPO in Jul, 1983
• McDonald's (MCD) trading at all-time highs back to its IPO in April, 1965

New 52-week lows:

• Lincoln National (LNC) trading at lows not seen since Oct, 2020
• Warner Bros. Discovery (WBD) trading at lows not seen since May, 2009

— Sarah Min, Gina Francolla

Carvana traded more than 21% lower Monday, bringing the used car seller's stock below $7 a share for the first time. The move adds to the stock's recent sell-off. Year to date, Carvana share are now down about 97%.

Volume surged in Carvana, with the stock surpassing its 30-day average volume of 14.14 million in roughly 30 minutes of trading.

— Mike Wayland, Fred Imbert

A big inflation report this week could remove a potential roadblock for stocks to build on the recent rally, according to CFRA chief investment strategist Sam Stovall.

The October consumer price index is slated for release on Thursday morning, and is expected to see a modest drop compared to the prior month. That could help reverse the losses caused by the Federal Reserve's aggressive stance at last week's meeting.

"The projected decline in year-over-year CPI growth to 7.9% from 8.2% in September, and the 9.1% peak in June, may allow investors to breathe a sigh of relief and resume the October rally. In other words, if the CPI should drop, stocks may pop," Stovall wrote.

— Jesse Pound

The bear market rally could "hang around for longer" than investors expect if it makes it through this week, according to Morgan Stanley's Mike Wilson. The strategist said traders should stay bullish for now, with some tight stops.

Investors will have to get through another stacked week with the Congressional midterm elections, and the latest consumer inflation data, after surviving an "onslaught" of challenges last week. Stocks had digested commentary suggesting higher interest rates for longer from Federal Reserve Chair Jerome Powell, as well as stronger-than-expected jobs data on Friday.

"In the end, we think it survives again with the mid terms providing the catalyst for lower bond yields and higher equity prices. Watch 4.35% on 10 year UST yields and 3620 for S&P 500 as stop out levels for the rally to end sooner than we expect," he wrote in a Monday note.

Still, investors should "consider exiting bullish trades" should the yield on the 10-year Treasury climb to a new high of 4.35%, as that will mean the odds of the stock rally climbing to highs greater than 3950 "goes down considerably," Wilson said.

But the strategist said he does not expect markets will plunge to new lows as companies would have to further reduce 2023 earnings per share forecasts for that to happen, something Wilson does not expect until the fourth-quarter reporting season.

"In short, the bear market rally is likely to hang around for longer than most expect if it can survive this week's test," he wrote.

— Sarah Min

U.S. stocks rose Monday as a packed week kicked off, with congressional midterm elections and key inflation data on deck over the next few days.

The Dow Jones Industrial Average traded higher by 124 points, or 0.4%. The S&P 500 and Nasdaq Composite gained 0.5% and 0.5%, respectively.

— Sarah Min

Technical analyst Frank Cappelleri noted that while the long-term effects of Tuesday's midterm elections won't be known for a while, just getting through an event like that could bring a short-term boost for the market.

"The market's search for 'certainty' is a never-ending quest," the CappThesis founder wrote in a note to clients. "Even when we receive a piece of highly anticipated news, the long-term outcome is predicated on factors that have yet to be revealed."

"That being said, simply getting a big 'something' out of the way frequently provides short-term relief. And with tomorrow's mid-term elections in the US finally upon us, bullish traders are hoping for such a scenario," he added.

Cappelleri cited data from The Stock Trader's Almanac, which said that the "day of" and "day after" midterm elections have been bullish for stocks 69% and 83% of the time, respectively.

"It would come at an opportune time, with the SPX trying to fight back after last week's FOMC meeting, which prevented the index from overcoming the important 3,900 zone," Cappelleri said.

— Fred Imbert

Shares of Palantir dipped 1.9% in Monday premarket trading after reporting a miss in earnings expectations in its latest quarterly results. The data analytics company posted earnings of 1 cent per share on revenue of $477.88 million. Analysts surveyed by Refinitiv were forecasting earnings of 2 cents per share on revenue of $470 million.

— Sarah Min

This little-known financial stock should benefit from PayPal's plan to add its cards to Apple Wallet in 2023, Bank of America says.

"Assuming the combined PayPal and Venmo portfolio comprises about 15% of total purchase volume, 5% of users make it top-of-wallet and these users get a 30% lift in spending, we estimate the change could provide a 20-25bps boost to SYF's total purchase volumes," analyst Mihir Bhatia said in a note to clients.

Read the full call from Bank of America here.

— Samantha Subin

Wells Fargo downgraded shares of Costco, saying in a note to clients Monday that the stock is trading too expensive given the headwinds it faces going forward.

"We have become increasingly concerned about how staples retail stocks react to slowing top-line momentum, and COST may have more exposure to this issue given its relatively high multiple," wrote analyst Edward Kelly.

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

— Samantha Subin

Jeremy Siegel said it is important the Fed looks at data that reflects what's currently happening rather than past trends as the central bank attempts to gauge inflation.

Siegel specifically pointed to housing data, which can be looked at through different indexes to get either forward estimates or past averages. The University of Pennsylvania finance professor said the Fed should be using the former when making forward-looking policy decisions like interest rate hikes.

"They're looking at the wrong indicators," Siegel said on "Squawk Box."

This could prompt a realization that it's time to pivot on interest rate hikes, he said.

"It's a realization of what is going on in the market," Siegel said, adding that Chair Jerome Powell will "see the light," but it is "taking him a little longer."

— Alex Harring

In the event of a recession, Goldman Sachs is forecasting that S&P 500 earnings growth will contract, David Kostin wrote in a Friday note.

The firm lowered its 2023 EPS growth forecast to 0% from a 3% gain to "incorporate greater margin contraction than we previously assumed," said Kostin.

The one standout will be the energy sector, which has been lifted by high oil prices and disciplined capital expenditures. Goldman Sachs forecast forecast S&P 500 margins excluding Energy will contract by 86 bp in 2022 and 50 bp in 2023 and return to the pre-pandemic 2019 level of 11.3%.

"Negative EPS revisions to 2023 consensus estimates have been particularly sharp this year," wrote Kostin. "In a recession, we expect S&P 500 EPS would fall by 11%."

The firm maintained its 2022 and 2023 S&P 500 targets, however, which forecast slight growth next year. Goldman Sachs anticipates that at year-end, the S&P 500 will be at 3,600, a 5% dip.

For 2023, their target is 4,000, which would be a 6% gain on the year.

—Carmen Reinicke

Take a look at some of the biggest movers in the premarket:

• BioNTech (BNTX) – The drugmaker's shares slid 3.4% in the premarket despite reporting better-than-expected quarterly profit and revenue. Results were down sharply from a year ago, with both profit and revenue off more than 40% from 2021′s third quarter.
• Meta Platforms (META) – Meta added 2.6% in the premarket after The Wall Street Journal reported that the Facebook parent was preparing to announce large-scale layoffs this week.
• Apple (AAPL) – Apple shares slid 1.8% in the premarket after it said Covid-19 restrictions are hindering iPhone production at the Foxconn factory in China. That factory is the world's biggest iPhone production site.

Check out the full list here.

— Peter Schacknow

Berkshire Hathaway's Class A shares rose 1.4% in premarket trading Monday after the conglomerate posted a solid gain in operating profits during the third quarter.

The Omaha-based conglomerate's operating earnings — which encompass profits from its subsidiary businesses such as insurance, railroads and utilities — totaled $7.761 billion in the third quarter, up 20% from year-earlier period.

Berkshire spent $1.05 billion in share repurchases during the quarter, bringing the nine-month total to $5.25 billion.

However, Berkshire did post a net loss of $2.69 billion in the third quarter, versus a $10.34 billion gain a year before. The quarterly loss was largely due to a drop in Berkshire's equity investments amid the market's rollercoaster ride.

— Yun Li

Shares of Facebook-parent Meta Platforms rose more than 3% in the premarket after The Wall Street Journal reported that the company could begin large-scale layoffs as soon as Wednesday.

A Meta spokesperson declined to comment on the report and pointed CNBC to comments made by CEO Mark Zuckerberg last month.

"Some teams will grow meaningfully, but most other teams will stay flat or shrink over the next year. In aggregate, we expect to end 2023 as either roughly the same size, or even a slightly smaller organization than we are today," he said.

Layoffs would come after a rough year for the social media giant, with its stock down 73%.

— Fred Imbert

Adam Crisafulli of Vital Knowledge cited four reasons why the market isn't being pressured by Apple's iPhone production warning.

First, the update "was vague; 2) there is still a lot of time left in CQ4; 3) tech sentiment is already horrible; and 4) just a few hours before Apple's neg. update, the city of Zhengzhou (where the Foxconn plant in question is located) said it would work to make its COVID rules less restrictive and more targeted (this came after the central gov't in Beijing criticized its approach)."

Apple traded 1% lower, but futures were up in early Monday trading.

— Fred Imbert, Michael Bloom.

Tech firms are facing a double whammy of bad news, with disappointing earnings and continued rate hikes by the Federal Reserve both weighing on the sector.

But with the tech-heavy Nasdaq down more than 30% year-to-date, analysts say there are some bright spots that could offer opportunities to investors.

Here are some of their top picks, including one stock with an average upside of over 50%.

CNBC Pro subscribers can read more here.

— Weizhen Tan

Morgan Stanley expects shares in an Asian battery materials maker to rally by 85% by the end of next year.

This under-the-radar battery materials supplier to Tesla, which already has triple-digit revenue growth, plans to expand manufacturing into the United States.

Even JP Morgan's analysts who use a "conservative valuation approach" expect the stock to rally by 25% in a year.

CNBC Pro subscribers can read more here.

— Ganesh Rao

Apple said iPhone 14 production has been temporarily reduced because of Covid-19 restrictions at its assembly plant in Zhengzhou, China, according to a statement Sunday.

The warning could mean the tech company may struggle to meet demand in December as it deals "significantly reduced capacity" at the plant. The company has previously signaled slowing growth in its iPhone business in its earnings report last month.

The warning from Apple comes as China in the past week ordered lockdowns in Zhengzhou, where Apple does the majority of its iPhone production. According to Reuters, employees have fled the facility because of Covid restrictions and outbreaks.

— Sarah Min, Kif Leswing

Baird's Ross Mayfield does not expect that the Federal Reserve will be able to raise the terminal rate to 5.25%, as expectations of further rate hikes than originally anticipated grow on Wall Street. He said the central bank could pivot after the rate hike in December.

"I do not think they're going to be able to bring the funds rate to 5.25%, which is roughly what the market's expecting right now. Frankly, I think they're going to struggle to even bring it to 4.5%," Mayfield said in a Friday note.

"We think that if they take the fed funds rate all the way to 5.25%, we'd be talking about a fairly painful recession and quite possibly one that has credit market implications around the globe. I don't think the Fed can get there, but Chair Powell might try simply because of how sticky inflation is. You need interest rates higher for longer to get that inflationary inertia truly out of the system," he added.

— Sarah Min

U.S. stock futures fell on Sunday night as investors looked ahead to a week packed with the Congressional midterm elections, as well as the latest consumer inflation report.

Dow Jones Industrial Average futures fell by 239 points.

— Sarah Min