Stocks resumed their inflation-driven rally on Tuesday after another report signaled that price increases could be slowing.
The Dow Jones Industrial Average ended the day up 56.22 points, or 0.17%, at 33,592.92. The S&P 500 advanced 0.87% to 3,991.73, and the tech-heavy Nasdaq Composite gained 1.45% to close at 11,358.41.
The major averages rallied after the producer price index, a measure of wholesale inflation, showed a 0.2% increase for the month of October, versus the consensus estimate for a 0.4% increase from Dow Jones. The report comes after last week's consumer price index data showed signs of inflationary pressure abating last month, sparking a sharp rally.
"The PPI read certainly adds more fuel to the fire for those who feel we may finally be on a downward inflation trend," said Mike Loewengart, head of model portfolio construction at Morgan Stanley's Global Investment Office. "The market embraced last week's consumer downtick and today's initial reaction seems to be more of the same."
The peak-inflation narrative is gaining traction, but the bar for a Fed pivot is still high, said Ross Mayfield, investment strategy analyst at Baird.
"There will be trepidation at the central bank given their credibility concerns and desire to avoid the mistakes of the 1970s (i.e., stop and start policy that prolonged the inflationary spell)," he said. "But the crumbs are already being laid for a deceleration in pace of tightening heading into 2023."
The Dow and S&P briefly dipped into the red in afternoon trading, after crude oil prices moved higher suddenly. Oil prices later eased from those highs.
Stocks ended higher for the third day in the last four, and all of the major averages are on pace for monthly gains. The Dow is up 2.6% for the month of November. The S&P and Nasdaq have gained about 3.1% and 3.4%, respectively.
Elsewhere, retail stocks also lifted investor sentiment. Walmart shares jumped after the company beat Wall Street earnings and revenue estimates and boosted full-year guidance. Home Depot also reported strong results but kept guidance in place for the full year. Its shares rose 1.6%.
"Retail earnings are off to a pretty decent start, and could serve to reinforce the broader narrative of consumer resilience and labor market tightness," Mayfield said. "Earnings are critically important from here... the pace and breadth of the earnings deceleration (or re-acceleration) should determine the next leg for equities."
Taiwan Semiconductor, Louisiana-Pacific and Paramount also jumped after regulatory filings showed that Warren Buffett's Berkshire Hathaway had bought new positions in the first two, and raised its stake in the last.
Earnings season continues this week with retail reports from Target, Lowe's, Bath & Body Works, Macy's, Kohl's and Foot Locker on deck.
The major averages rose Tuesday after another report signaled that inflation could be slowing.
The Dow Jones Industrial Average ended the day up 56.22 points, or 0.2%, at 33,592.92. The S&P 500 advanced 0.9% to 3,991.73, and the tech-heavy Nasdaq Composite gained 1.5% to close at 11,358.41.
— Tanaya Macheel
Aerospace and defense ETFs are outperforming the broader stock market Tuesday.
The largest, IShares US Aerospace & Defense ETF (ITA), with $4.3 billion in assets, is ahead 1.3%; Invesco Aerospace & Defense (PPA), with $1.7 billion, is up 1.2%; and the SPDR S&P Aerospace & Defense (XAR), with $1.3 billion, is also 1.2% higher.
— Scott Schnipper
Capital One Financial Corp shares slid more than 6% after Bank of America analysts downgraded the stock to neutral from buy, noting concerns about increasing charge-offs.
The BofA analysts noted that the October net charge-off rate for domestic card loans at Capital One was 2.93%, up 71 basis points from September. That level is 51 basis points above normal October seasonality, they noted. A basis point equals 0.01 of a percentage point.
"We are increasingly concerned that strong loan growth even as the macro weakens could drive losses higher than is currently factored into expectations, which we think will be ill received by investors," the BofA analysts wrote. "We lower our [price objective] to $113 from $124 based on an unchanged 7.5x PE multiple to 2023e EPS. COF offers a more balanced risk/reward profile and we think a Neutral rating is warranted."
The Federal Reserve reported earlier Tuesday that household debt is soaring at its fastest pace in 15 years, as credit card balances rose more than 15% from a year ago.
Meanwhile, retailer stocks were rallying after Walmart and Home Depot reported earnings beats. Walmart was up about 7%. Target and Macy's were both up more than 4% on expectations consumer spending could also help those chain stores.
"Here we are celebrating retail, but we have Cap One saying delinquencies are rising," said Peter Boockvar, chief investment officer at Bleakley Global Advisors.
—Patti Domm
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Evercore ISI's Julian Emanuel says the stock market has entered a traditionally dull market period between now and the next employment report, but it could keep heading higher.
"The deeper the starting point for a bear market rally, the higher the rally tends to go," said Emanuel, head of equity, derivative and quantitative strategy. "If you just extrapolate what the June to August rally did, that gets you to 4,150 [on the S&P 500]."
Emanuel said stocks could move higher in the quiet trading days around next week's Thanksgiving holiday. November's jobs report Dec. 2 is the next big piece of data for the Federal Reserve to consider when it meets Dec. 13 and 14.
The Fed will also weigh the November consumer price index, expected Dec. 13. The central bank is expected to hike interest rates by a half percentage point at that meeting.
Better inflation data has helped fuel a market rally since Thursday's October CPI was cooler than expected. The producer price index, released Tuesday, also showed a slower pace of inflation than expected.
The stock market has also entered a period where it typically does well, in the fourth quarter of midterm election years.
Strategists who follow charts have been expecting the S&P to reach 4,100 before it stalls out. The S&P 500 was at 3,987 in afternoon trading.
—Patti Domm
The Invesco QQQ Trust is not the only ETF that has seen significant interest in recent days.
Strategas ETF strategist Todd Sohn said in a note to clients that equity inflows saw more than $20 billion in ETFs on Thursday and Friday last week after a lower-than-expected CPI report. That marked an acceleration of an already strong trend.
"It's not just the last two days though… equity ETFs have taken in nearly +$90 Bn since the October CPI miss roughly a month ago, larger than the flows during both major bear market rallies this year combined," the note said.
Sohn added that high-yield bond ETFs have also seen strong inflows, pointing toward a broader risk-on trend among investors.
"Aggregate market sentiment has been largely supportive this year, but we'd put the recent flows surge on our radar as a growing tactical risk," the note said.
— Jesse Pound
The market may be getting too ahead of itself, taking Tuesday morning's PPI reading as a trend rather than a mere signal, said Daniel Berkowitz, senior investment officer for investment manager Prudent Management Associates.
"Despite these rather assuring sentiments, the possibility looms that the market continues to underestimate the Fed's terminal rate, even after the most recent recalibration upward," he said. "Net, net inflation and interest risk remain skewed to the downside in our assessment. Despite the downward pressure on Treasury yields, the yield curve remains highly inverted beyond short-term maturities, providing limited compensation for taking material duration risk."
— Tanaya Macheel
Morgan Stanley named exchange operator Cboe Global Markets a top pick and said it could rally more than 25%.
Analyst Michael Cyprys, who has an overweight rating, said a recent decline in value makes the current entry point attractive for the stock. Meanwhile, he said the operator should benefit from continued market volatility that pushes investors to look to shorter and index-focused trading.
"We see Cboe as a defensive beneficiary against a more challenging macro backdrop as elevated market volatility should support the outlook for trading volumes," he said in a note to clients.
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— Alex Harring
Here are three names making the biggest moves midday:
For more midday movers, check out our full list.
— Michelle Fox, Yun Li
Used car platform Carvana was downgraded by Oppenheimer on Tuesday as short-term concerns around its operational and financial health grow.
The firm downgraded the used car platform to perform from outperform. It also removed a price target of $100, which would have implied an upside of 926.7% from where the battered stock closed Monday.
"We remain optimistic about longer-term prospects for CVNA and the company's shares," analyst Brian Nagel said in a note to clients. "That said, significant nearer-term operational and financial risks for Carvana have emerged and are likely to cloud the CVNA investment story for the foreseeable future."
Still, he said there is a path to strong long-term performance. Despite a more difficult 2023 expected in the base case, the company should see 20% growth in 2025.
Carvana has lost 95.8% since the start of 2022, but rose 7.2% Tuesday in what could be a so-called short squeeze. In other words, investors who bet against the Carvana could be covering their positions, thus boosting the stock. Carvana was one of the most heavily shorted stocks on Wall Street at the end of October.
— Alex Harring
Shares of Paramount Global rallied more than 8% after a filing revealed that Warren Buffett's Berkshire Hathaway increased its stake in the media company to $1.75 billion at the end of the third quarter.
Berkshire now holds about 15% of Paramount's outstanding Class B shares, which makes it the largest shareholder.
KeyBanc said Berkshire's move is either because the conglomerate believes Paramount will be successful in the streaming wars, or that it is betting that the company could be a likely acquisition target.
— Yun Li
TCI Fund Management is calling on Google's parent company Alphabet to slash costs.
The activist hedge fund, which owns more than $6 billion worth of shares in Alphabet, said in a letter Tuesday that the company needs to aggressively reduce expenses and trim headcount in order to operate more efficiently.
In the letter, signed by Chris Hohn, the fund's founder and portfolio manager, TCI said employee compensation also remains too high. Alphabet also needs to cut its losses in its Waymo self-driving car segment, which has failed to justify its "excessive investment," TCI said.
Shares rose more than 4% on the news.
— Samantha Subin
Traders think that the U.S. economy is either in or near a recession, but that any economic downturn will be short-lived, according to the fourth quarter sentiment survey by Charles Schwab.
Some 55% expect any recession to last less than a year, while 45% think it will last longer. Still, 55% expect some relief in January and have bullish outlooks on a few sectors, including Energy (71%), Health Care (52%) and Utilities (47%). They are bearish on Real Estate (75%), Consumer Discretionary (62%) and Tech (51%).
—Carmen Reinicke
The KraneShares CSI China Internet ETF (KWEB) was last up roughly 10% and on pace for its best day since March 16, when it surged nearly 40%.
The funds' best-performing stocks Tuesday included Lufax Holding and Agora, which rose about 15% and 13%, respectively. Tencent Music Entertainment shares soared more than 16%. Shares of Alibaba, JD.com and Pinduoduo also moved higher.
KWEB is also on track for its fourth consecutive positive day.
— Samantha Subin
President Joe Biden issued a statement on Tuesday following the release of the PPI data, calling it "more good news for our economy" and an "indication that we are starting to see inflation moderate."
"The bottom line is this: my economic plan is showing results, and we face global economic challenges from a position of strength. As I said last week, it will take time to get inflation back to normal levels — and we could see setbacks along the way — but we will keep at it."
— Emma Kinery, Tanaya Macheel
Shares of retail stocks rose Tuesday morning after Walmart and Home Depot earlier in the day reported stronger-than-expected financial results for the third quarter.
Walmart jumped 7% to start the day, while Home Depot inched higher by 1%.
Both Target and Kohl's shares rose about 4%, while Bed Bath & Beyond added 3%. Macy's and Nordstrom advanced 5% and 4%, respectively.
Discount retailers rose too. Dollar General and Costco gained 3% each.
The SPDR S&P Retail ETF was up by 4.1%.
— Tanaya Macheel
The Invesco QQQ Trust exchange-traded fund had $6 billion in inflows last week, the second largest weekly inflow ever, Barclays strategist Anshul Gupta wrote in a note Tuesday. The largest occurred during the Covid rally in September 2020, he pointed out.
The move came amid a strong week for the stock market, with the S&P 500 notching its best week since the one ended June 24. Investors were buoyed by the lower-than-expected increase in the consumer price index.
The QQQ inflows were "another sign of the over-reaction of investors" to the inflation data, likely amplified by technical and positioning drivers, Gupta said.
— Michelle Fox
Biotech has shown a lot of strength lately and is contributing to what's likely to prove broader, fourth quarter outperformance by the health care sector, Mark Newton, head of technical strategy at Fundstrat Global Advisors wrote in a note late Monday entitled, "Biotech breakout worth following as Healthcare gets stronger."
The iShares Biotechnology ETF (IBB) has strengthened lately and is showing a bullish chart pattern, Newton wrote, and "is a very positive development for Biotech which had been slowly building a base for much of the year. Near-term, I expect IBB to push higher to $140.80, with an outsized chance of hitting $149 which would be strong overhead resistance."
Among the large-cap biotech stocks showing recent strength: MRNA, AMGN, GILD, BIIB. Meanwhile, "former leaders" including VRTX and REGN "remain quite strong technically speaking and should be able to participate given Monday's breakout."
Finally, the IBB has broken out relative to the big pharma ETF (PPH), as well as the iShares US Medical Devices ETF (IHI) and SPDR S&P Health Care Services ETF (XHS) and, as a result, "is the strongest sub-industry group right now within Healthcare," which should continue in to December, Newton said.
— Scott Schnipper
Stocks opened higher Tuesday after October's produce price index signaled that inflation could be slowing.
The Dow Jones Industrial Average rose about 300 points at the open, or 0.9%. The S&P 500 advanced 1.6% and the Nasdaq Composite added 2.4%.
— Tanaya Macheel
October's lighter-than-expected producer price index suggests a "day of recognition" from the Federal Reserve may be coming sooner than expected, Jeremy Siegel, professor of finance at the Wharton School of Business told CNBC's "Squawk Box" on Tuesday.
"I think this moves up the pivot," he said. "All we need is for them to recognize what prices on the ground are actually doing and they are not going up. They're probably going to go 50 basis points, but that should be the absolute pause."
Siegel also told CNBC that the yield on the 10-year Treasury note has likely hit its peak and the S&P shouldn't retest this year's previous lows.
— Samantha Subin
The producer price index, a measure of wholesale inflation, rose 0.2% in October on a month-over-month basis. Economists polled by Dow Jones expected an increase of 0.4%.
The report comes less than a week after the consumer price index report showed a lighter-than-expected increase as well, stoking optimism that inflation could be easing.
— Jeff Cox