Stocks rally for a third day ahead of midterm election results, Dow closes 300 points higher

Stocks rallied for a third straight day Tuesday as investors awaited the results of the U.S. midterm elections, which could affect future levels of government spending and regulation.

The Dow Jones Industrial Average gained 333.83 points, or 1.02%, to 33,160.83. The S&P 500 was up 0.56% to 3,828.11. The Nasdaq Composite advanced 0.49% to 10,616.20.

— Sarah Min

Stocks came off their highs as crypto fell hard after the two largest crypto exchanges agreed to merge to fix their latest "liquidity crunch."

Bitcoin was down more than 11% on Coin Metrics, after initially gaining on news Binance and FTX came to a merger agreement.

"It's clear the market got an upset stomach when this all came out," said Peter Boockvar, chief investment officer Bleakley Global Advisors.

Stocks recovered some of their earlier gains after dipping in afternoon trading. The Nasdaq was temporarily in negative territory.

"Crypto is just seeing another reiteration of accidents. This is so high profile. These were the two biggest crypto exchanges in the world, where one just in a matter of days sees a run on the bank and almost evaporates," said Boockvar.

— Patti Domm

Stocks rose heading into the final hour of trading, though well of the highs of the day, amid a broader sell-off in cryptocurrencies.

As of 3:03 p.m. ET, the Dow Jones Industrial Average gained 320 points, or 1%, after rallying more than 500 points earlier in the day. The S&P 500 was up 0.5%. The Nasdaq Composite was 0.2% higher. All indexes are on pace for third third straight positive day.

Stocks came off their highs in afternoon trading amid a broader sell off in cryptocurrencies. Bitcoin dropped 15% Tuesday after the two biggest crypto exchanges in the world, Binance and FTX, came to a merger agreement to fix the latest "liquidity crunch."

— Sarah Min

Expect the Federal Reserve to mitigate any feeling of excitement market investors may currently be experiencing, said Mark Avallone, president of Potomac Wealth Advisors.

The market continues its rally even as inflation shows no signs of slowing, Avallone said. At the same time, the Fed hasn't shifted its tone or policy.

"There's a very good chance that this bit of euphoria may be tempered once again by this Scrooge mentality over at the Fed," he told CNBC's "The Exchange" on Tuesday, referring to the current market bounce back.

In this market shakeup, Avallone recommends investors put their money in exchange-traded funds versus standalone stocks, given the heightened risks in a bear market. He pointed to defense ETFs with names like Raytheon Technologies and Lockheed Martin for those looking to play the ongoing war in Ukraine.

Stocks, however, do look attractive for those with a longer-term time horizon given the depressed multiples and valuations, he said.

— Samantha Subin

If history is any guide, it isn't unrealistic for investors to expect the S&P 500 to rally into the end of 2022, Raymond James' Ed Mills said.

In the run-up to a midterm election, the S&P 500 tends to perform weekly until the first week of October. Then, the market turns around and rallies into year-end.

"The market is usually weak until we start figuring out who might win, and then you see a little bit of a relief rally as that certainty comes back," the Washington policy analyst told CNBC's "The Exchange" on Tuesday.

Since 1946, the market's been up 100% of the time in the 12 months following a midterm election, and up six months after a midterm election every time since 1950.

Heading into the new year, Mills views the debt limit as a potential issue that could move markets this time around.

"The one caveat is, do Democrats try to get that done in the lame duck," he said. "I don't think they do, but if they were. that's a lot of upside surprise by taking the biggest risk in 2023 from D.C. off the table."

— Samantha Subin

Bitcoin dropped 9% Tuesday, with the FTX token cut in half, amid a broad crypto sell-off in early afternoon trading.

Bitcoin fell more than $1,900 to $18,889, as of 1:35 p.m. ET. Meanwhile, the FTX token plunged nearly 60% to 8.90.

Those moves follow an agreement between the two biggest crypto exchanges in the world, Binance and FTX, to solve a "liquidity crunch."

— Sarah Min

Earnings announcements were a big catalyst for the stocks making the biggest moves in midday trading Tuesday.

Lyft – Shares of Lyft plummeted 21% after the company's earnings report showed mixed results in the last quarter. The rideshare company reported adjusted earnings per share of 10 cents, more than analysts' expectations of 7 cents, but revenue fell short of the Street's forecast, coming in at $1.05 billion versus $1.06 billion expected, per Refinitiv.

Tripadvisor – The travel platform dropped 17% after its quarterly earnings came in below expectations.  The company cited currency fluctuations as a driver of the performance while noting demand for travel remained strong.

Take-Two Interactive – Shares of Take-Two tumbled more than 11% a day after the video game company slashed its outlook for net bookings for the year. It also said it expects a net loss for the fiscal year ending March 31, 2023 between $674 million to $631 million, worse than the guidance provided in its first-quarter earnings. 

Kohl's – Shares of the retailer surged 10% following news that CEO Michelle Gass is leaving the company. Gass will join Levi Strauss & Co. as president and CEO in waiting come January. Levi Strauss shares slipped 1.8% on the news.

Read more here.

—Carmen Reinicke

Investors should prepare to pounce on shares of Apple as the iPhone maker approaches a solid price-to-earnings ratio, Morgan Stanley says

"An opportunity to 'buy the dip' emerges, but tracking fluid iPhone production situation remains key," wrote analyst Erik Woodring in a note to clients Tuesday, saying the bank would be "methodical buyers" of the stock as it approaches a PE of 20 times.

Apple's price-earnings ratio, or the relationship between its stock price and earnings per share, is in line with its 5-year average and well below its August 2022 peak, Morgan Stanley noted. The iPhone maker last traded at a PE of roughly 23 times.

Woodring also said the bank views the ongoing restrictions at Apple's Zhengzhou facility as a "deferral" rather than a destruction of demand.

Morgan Stanley reiterated its overweight rating on the stock, but slightly trimmed its price target to $175 a share. That represents a 26% upside from Monday's close. The bank also amended revenue estimates for the December quarter to account for lower iPhone production, believing 60% to 70% of those total units lost should, however, be recouped in the following period.

— Samantha Subin

The Manheim Used Vehicle Value Index fell 10.6% year-over-year in October.

That marks the fifth month declining for the index, which investors look to as a gauge of used car prices.

"This is another tailwind that suggests inflation could surprise to the downside over the coming months," said Ryan Detrick, chief market strategist at Carson Group.

Compared to September, the index fell 2.2% on a seasonally adjusted basis. That's a slightly smaller decline from the 3% drop seen when comparing August and September.

All eight major segments of the used car market saw year-over-year declines in October.

Compared to September, six of the eight segments saw declines. Full size was the only segment to see prices rise, while vans remained flat.

— Alex Harring

Bitcoin jumped during trading Tuesday as two major exchanges reached a deal to mitigate liquidity challenges.

The cryptocurrency made a jump of more than $1,000 to nearly $26,000 during trading Tuesday. It dipped to near $19,200 shortly before the pop.

The move follows a deal from Binance and FTX that is expected to help solve challenges related to liquidity.

— Alex Harring

JPMorgan halved its price target on used-car seller Carvana as the company faces mounting volume pressures.

"Net-net, chance of survivability is not a reason to engage in shares currently, and we believe CVNA is far from out of the woods, as even when the industry bottoms out, we don't see a V-shaped recovery in the industry," analyst Rajat Gupta wrote in a note to clients Tuesday.

CNBC Pro subscribers can read more on JPMorgan's call.

— Samantha Subin

Binance, the world's largest cryptocurrency firm, has reached a deal with Sam Bankman-Fried's FTX to buy the crypto exchange for an undisclosed amount.

Binance CEO Changpeng Zhao tweeted Tuesday morning that "there is a significant liquidity crunch" at FTX and that after FTX asked for Binance's help, they "signed a non-binding LOI, intending to fully acquire http://FTX.com and help cover the liquidity crunch."

Zhao added that Binance will be conducting a full diligence in the coming days.

— MacKenzie Sigalos

At least eight stocks traded at all-time highs during Tuesday's trading session.

That included shares of McDonald's, which hovered near levels not seen since the fast-food giant's April 1965 initial public offering. Amgen and Regeneron Pharma also traded near highs not seen since their respective IPOs in 1983 and 1991, while Lockheed Martin traded at all-time highs dating back to its 1995 merger between Martin Marietta and Lockheed.

These stocks also hit fresh highs:

• General Parts Company trading at all-time high levels back to its IPO in 1948
• Gilead trading at levels not seen since May 2020
• Biogen trading at levels not seen since September 2021
• Raymond James Financial trading at all-time high levels back to its IPO in July 1983
• Arthur J Gallagher trading at all-time high levels back to its IPO in June 1984
• Aflac trading at all-time high levels back to its IPO in June 1974 as American Family Life Assurance Company of Columbus
• PACCAR trading at levels not seen since February 2021

These seven stocks traded near record lows:

• Tesla trading at lows not seen since May 2021
• Take-Two trading at lows not seen since April 2019
• Warner Bros. Discovery trading at lows not seen since May 2009
• Invitation Homes trading at lows not seen since March 2021
• Essex Property trading at lows not seen since November 2020
• Edwards Lifesciences trading at lows not seen since June 2020
• SVB Financial trading at lows not seen since July 2020

— Samantha Subin

If Republicans win both houses of Congress on Tuesday, it will create a party split in Washington, D.C. that has historically been good for stocks.

According to data compiled by Wells Fargo, there have been four instances since 1948 where a Democratic president was paired with a Republican-controlled Congress. Those periods had an average 2-year total return of 41.2% for the S&P 500, higher than any other combination.

The second best period has been when the Democrats hold the White House and the Senate, but not the House of Representatives. Those two instances have an average total return of 35.9%, according to Wells Fargo.

— Jesse Pound

The stock market's relatively flat performance over the last five months may be a signal that a new bull market is starting to repair itself, according to Jim Paulsen, chief investment strategist for Leuthold Group, said on CNBC's "Squawk Box" Tuesday.

"It looks more like we're headed to a new recovery than a new recession," he said.

In this environment, he's looking at early cycle stocks with a particular focus on consumer discretionary names.

"My favorite sector is probably consumer discretionary," he said. "It's the one that was hit hardest by inflation because it destroys not only its operating margins but its customer base because it destroys their confidence. With that reversing, I think that they'll be a leader."

He's also looking at other cyclical stocks like industrials and financials as well as growth stocks. There may also be opportunity in offshoring and emerging markets as the U.S. dollar strength declines with high inflation, he said.

"I think that's going to make international stocks do pretty well here in the next year," he said.

—Carmen Reinicke

Norwegian Cruise Line's stock added 5% after the company reported a smaller-than-expected loss in the recent quarter as consumers return to travel.

The cruise stock posted an adjusted loss of 64 cents per share on $1.62 billion in revenue. Analysts surveyed by Refinitiv had anticipated a loss of 70 cents a share on $1.58 billion in revenue.

The company also signaled that it expects a strong 2023, with bookings at record 2019 levels with "significantly higher" pricing.

Royal Caribbean and Carnival gained 1.8% and 2%, respectively, following the results.

— Samantha Subin

Shares of Robinhood fell more than 9% on Tuesday as traders worry about the fallout from controversy around crypto firm FTX.

FTX CEO Sam Bankman-Fried revealed a 7.6% stake in Robinhood in May, which sparked speculation that FTX could buy the struggling brokerage firm.

Robinhood's stock is down nearly 40% year to date, and the company's market cap has fallen below $10 billion. The company reported another decline in active users during the third quarter, though its assets under custody rose slightly.

— Jesse Pound

The major averages rallied Tuesday morning, with nine out of 11 sectors in S&P 500 trading in positive territory. Materials and information technology led gains in the broader market index, up 2.2% and 0.9%, respectively.

Meanwhile, consumer discretionary and energy sectors were the only losing sectors. They were each down 0.5%.

— Sarah Min

Deutsche Bank upgraded shares of Dave & Buster's Entertainment to a buy rating, saying in a note to clients that the restaurant stock offers a solid risk-reward even with a difficult macro environment ahead.

"When we scan our restaurant coverage universe looking for opportunities, in what is still very much a tough macro (or in at least in what logically feels like it should be a very tough macro for consumer spending), we think the risk reward on PLAY stands out as fairly compelling at present," wrote analyst Brian Mullan in a note to clients.

Mullan also upped the bank's price target on the stock, which suggests a sizeable potential rally ahead for the stock.

Read more on Deutsche Bank's call here.

— Samantha Subin

Stocks opened higher Tuesday following a winning day for markets as investors looked ahead to U.S. midterm elections.

The Dow Jones Industrial Average gained 114 points, or 0.35%. The S&P 500 was up 0.21%, while the Nasdaq Composite advanced 0.23%.

— Sarah Min

Bank of America says the selling of U.S. equities in the last two weeks was broad based.

Strategist Jill Carey Hall said in a Tuesday note that clients sold U.S. equities for a second consecutive week last week for the largest outflow since April 2021. Investors sold equities across all 11 sectors the first time in five years, with the largest selling concentrated in commodities.

Still, cumulative outflows of $6 billion in the last two weeks, compared to cumulative inflows of $56 billion this year, shows that the selling was "not extreme," according to the note.

— Sarah Min

Shares of Kohl's jumped 11.3% in premarket trading after the department store company said Tuesday that CEO Michelle Gass is leaving the company next month for a new opportunity.

The departure will take effect on Dec. 2. The board appointed Tom Kingsbury, a director at Kohl's since last year, to serve as interim CEO.

The company also reported preliminary third-quarter results. Kohl's said comparable sales fell 6.9% in the quarter, while net sales dropped 7.2%, from the prior year.

— Sarah Min, Melissa Repko

Evercore ISI downgraded shares of Lyft, saying in a note to clients that Uber is the better rideshare pick to own.

"Valuation is very reasonable here (1X EV/Sales and 9X EV/EBITDA), and we continue to believe strongly in the secular and profit growth potential of Ridesharing," analyst Mark Mahaney said. "But on this thesis, we'd much rather own UBER, given its superior scale and business model & geo diversification. Hence the downgrade."

Lyft on Monday posted mixed quarterly results, sharing a decline in active riders and a revenue miss. Earnings beat analysts' expectations.

CNBC Pro subscribers can read more on the downgrade here.

— Samantha Subin

A shift in political party control affects the outlook for defense contractors, and this Tuesday's election should be no different if Republicans gain a majority in one or both chambers of Congress, according to Morgan Stanley.

"All else equal, we see GOP gains as potentially supportive of higher defense spending levels unless deficit hawks emerge," analyst Kristine Liwag wrote in a note Tuesday.

While higher defense spending is a tailwind for defense contractors, there are also potential headwinds. A loss of Democratic control of Congress could also drive further delays to finalize the defense budget for fiscal year 2023, she said.

The current continuing resolution, which funds the government at last year's fiscal levels, expires on Dec. 16.

"We see the likelihood of extension growing should Republicans take control of either the House or Senate given potential conflicting priorities vis-à-vis the White House," Liwag said.

An extended continuing resolution poses a risk to defense companies because it typically curtails the Defense Department's ability to start or ramp up new programs, she added.

— Michelle Fox

UBS is forecasting a recession between the second and fourth quarter of 2023 that will in turn hit the S&P 500.

Analyst Keith Parker expects a sell-off of S&P 500 stocks into the second quarter that brings the index to a bottom at 3,200 points. That's 15.9% from where the index last closed.

After that bottom, Parker expects the S&P 500 to rally to 3,900 by the end of 2023. That would be about 2.4% higher than where it last closed.

"The setup for 2023 is essentially a race between easing inflation and financial conditions versus the coming hit to growth and earnings," he said in a note to clients.

Parker set a 2024 target of 4,400, which is 15.6% higher than the index's last close. But Parker said that level could be hit in 2023 if the economic backdrop improves quicker.

— Alex Harring

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

• Take-Two Interactive (TTWO) – Take-Two tanked 17.4% in the premarket after the videogame publisher cut its bookings outlook for the year. Take-Two has been impacted by weaker mobile and in-game sales, although CEO Strauss Zelnick said the situation should improve within the next three to six months.
• Lyft (LYFT) – Lyft sank 17.3% in premarket action after its latest quarterly report showed slowing revenue growth and ridership levels that remain below pre-pandemic levels. The ride-hailing service did, however, report better-than-expected earnings for its latest quarter.
• TripAdvisor (TRIP) – TripAdvisor shares plummeted 20.8% in premarket trading after the travel website operator's quarterly earnings came in below Wall Street forecasts. TripAdvisor said currency fluctuations had a meaningful negative impact on revenue and that travel demand remains strong.

Check out the full list here.

— Peter Schacknow

Markets should have a "muted" reaction to a Republican takeover in the midterm elections as it's already baked into expectations, according to Goldman Sachs' chief economist Jan Hatzius.

"The financial market reaction to a Republican win should be muted, as the House outcome is already widely expected, and the Senate outcome makes less of a difference to policy outcomes if Republicans control the House," Hatzius wrote in a Monday note.

"A surprise Democratic win in the House and Senate would likely weigh on equities, as market participants might expect additional corporate tax increases," he added.

The chief economist said interest rates might rise should the Democrats win the midterm elections, as traders will expect further spending, which could result in tighter monetary policy.

— Sarah Min

Treasury yields were little changed Tuesday morning as investors took a cautious view ahead of the U.S. congressional elections.

The benchmark 10-year note last yielded 4.21%, virtually flat after popping last week following the Federal Reserve's latest interest rate hike.

The two-year note, which is particularly sensitive to policy moves, held steady at 4.716%.

Traders are watching Fed communications closely for clues on where the central bank heads next with rates. Richmond Fed President Thomas Barkin said he expects the inflation fight to persist.

—Jeff Cox

European markets were mixed on Tuesday as global investors looked to the United States midterm elections.

The pan-European Stoxx 600 hovered around the flatline in early trade, having recouped opening losses of almost 0.5%. Tech stocks climbed 1.1% while oil and as stocks fell 1.1% amid a generally mixed picture for major bourses across the continent.

- Elliot Smith

Prices of bitcoin and ether dropped 5.7% and 8% each as the price of FTX's exchange token FTT plunged over 20%.

The moves come after Binance CEO Changpeng Zhao tweeted that he would sell the exchange's remaining holdings of FTT, the native token of billionaire Sam Bankman-Fried's exchange.

Zhao's tweet followed a CoinDesk report that said the balance sheet of Alameda Research, Bankman-Fried's principal trading firm, is "full" of the FTT token.

This shows that "Alameda rests on a foundation largely made up of a coin that a sister company invented, not an independent asset like a fiat currency or another crypto," CoinDesk reported.

The prices of FTT plummeted more than 31% to $15.33 in Asia's afternoon – after hovering around $22 – the price at which Alameda CEO Caroline Ellison offered to buy "all" of what Binance is selling, in response to Zhao's tweet.

–Jihye Lee

A slew of companies reporting earnings Monday evening saw their stock slump in after hours trading on disappointing results and weak forward guidance.

Lyft — Lyft stock sank 13% after the ridesharing company reported mixed earnings results. Lyft reported adjusted earnings per share of 10 cents, more than analysts' expectations of 7 cents, but revenue fell short of the Street's forecast, coming in at $1.05 billion versus $1.06 billion expected, per Refinitiv.

Take-Two Interactive — Shares of software company Take-Two sank 15% after reporting a miss on revenue and lowering their guidance for the rest of the fiscal year. Revenue for the quarter was $1.50 billion versus an expected $1.55 billion. For the current quarter and the full year, the company is also anticipating weaker-than-expected net bookings.

Tripadvisor — Shares of Tripadvisor sank more than 15% in after-hours trading following a miss on earnings. The company reported adjusted earnings per share of 28 cents where analysts expected adjusted earnings per share of 38 cents, according to Refinitiv. Revenue, however, was $459 million versus the $442 million estimate.

Read more about after hours movers here.

—Carmen Reinicke

U.S. stock futures opened little changed in Monday night trading as Wall Street awaits Tuesday's U.S. midterm elections.

Futures tied to the Dow Jones Industrial average shed 18 points or 0.05%. S&P 500 futures and Nasdaq 100 futures fell 0.05% and 0.01%, respectively.

Earnings weighed on stocks in after hours trading. Shares of Lyft fell 13% while Take-Two Interactive and Tripadvisor slumped more than 15% each after reporting disappointing quarterly results.

--Carmen Reinicke