The Dow Jones Industrial Average finished higher Tuesday as investors parsed through the latest batch of corporate earnings reports for insight into the state of the economy.
The Dow gained 104.40 points, or 0.31%, to close at 33,733.96. This marked the third day of gains for the 30-stock index. The S&P 500 dipped 0.07% to settle at 4,016.95, while the Nasdaq Composite dropped 0.27% to end at 11,334.27.
Earnings season continued Tuesday with mixed results. 3M dropped 6.2% on disappointing guidance, while Union Pacific dipped 3.3% after the railroad company's results fell short of analysts' estimates. The unofficial start to big-tech results kicks off with Microsoft reporting after the bell.
"We've had two really strong days in the market in anticipation that the Fed's going to pause as we get into a busy week of earnings," said Victoria Fernandez, chief market strategist at Crossmark Global Investments. "But, the earnings that we saw yesterday and this morning are really mixed."
Fernandez expects stocks to trade in a tight range as the market absorbs the latest commentary on margins, inflation and the macro environment.
Tuesday's market moves come after a solid start to the week, with all the major averages coming off of back-to-back gains. On Monday, the Nasdaq Composite led with a gain of 2.01%. The S&P 500 and Dow added 1.19% and 0.76%, respectively.
The gains have come despite an underwhelming start to earnings season and more signs that the U.S. economy is slowing. Some investors hope these findings will prompt a pivot from the Federal Reserve when it convenes at its policy meeting next week.
Correction: An earlier version of this story misstated the Dow's move for the session.
Stocks fought for direction Tuesday, but the Dow Jones Industrial Average finished higher.
The 30-stock index gained 104.40 points, or 0.31%, to close at 33,733.96. The S&P 500 dipped 0.07% to settle at 4,016.95, while the Nasdaq Composite dropped 0.27% to end at 11,334.27.
— Samantha Subin
Correction: An earlier version of this blog misstated the Dow's move for the session.
Jeremy Grantham is far from abandoning his long-term pessimism over the likely future return on U.S. stocks, but admits in his latest investment commentary for Grantham, Mayo, & van Otterloo, the firm he helped co-found, that the next few months should be okay and prices could move higher.
Grantham, the GMO chairman, bases his benign view for the next three months on the third year of the so-called presidential cycle in 2023 and, specifically, on how stocks have historically performed during the seven months from October 1st of year 2 to April 30 of year 3.
Going back to 1932, Grantham says stock market returns during those seven months equal the entire return of the other 41 months combined.
"We are now in this sweet spot, which once again is up nicely so far...this positive influence may help to support the market for a few more months," Grantham wrote.
Otherwise, Grantham retains his long-held bearishness, arguing the S&P 500 could easily end 2023 at 3200 "and spend at least some time below it this year or next."
"The pricking of the supreme overconfidence bubble is behind us, and stocks are now cheaper. But because of the sheer length of the list of important negatives, I believe continued economic and financial problems are likely. I believe they could easily turn out to be unexpectedly dire. I believe therefore that a continued market decline of at least substantial proportions, while not the near certainty it was a year ago, is much more likely than not," Grantham wrote in the report, dated Tuesday.
The eventual stock market bottom might not even come until well into 2024, the 84-year-old Grantham said, since the usual stock market low after a colossal bubble — not simply an "ordinary" bull market — comes roughly one year after the start of a subsequent recession.
— Scott Schnipper
As market participants worry over a potential debt ceiling crisis, Barclays says it would not expect an immediate hit to the economy.
"Our implicit assumption is that this will not turn out to be a material economic event for the country. But in this piece, we consider the 'what-if' scenario," Ajay Rajadhyaksha wrote in a Tuesday note.
"If the debt limit is not raised in time, how will the economy and financial markets react? The answer is not intuitive. A debt ceiling crisis will not immediately be a big bang, in our view; it would be a slow burn that builds to a bigger problem," Rajadhyaksha continued.
The take comes after the Treasury Department started taking extraordinary measures to pay the country's bills after the U.S. hit its debt limit, according to U.S. Treasury Secretary Janet Yellen last week.
Yellen said new investments into Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund will be suspended until June. They face "considerable uncertainty" if Congress does not raise the $31.4 trillion debt ceiling.
Still, Barclays pointed out that the Treasury's debt obligations will be unaffected, even as other forms of spending will be. That means any effect from the debt ceiling would be a "temporary fiscal hit, not a bond default."
"We do not foresee any fiscal drag having a lasting effect. After all, all of the forced spending cuts will have to be made up whenever the debt ceiling is raised; these are all spending commitments that the government has already made," read the note.
"But if several weeks pass after the 'x-date' without an increase in the debt limit, the economic pain will start to make itself felt," it continued.
— Sarah Min
Oppenheimer initiated coverage of major retailer Target with an outperform rating, citing potential for multi-year profit recovery driven by share gains and gross margin expansion.
"Longer term, we believe the company is well positioned to continue capturing share, driven by digital efforts, store investments, merchandising success on the exclusive brand front, competitor liquidations over time, and partnerships with other brands/retailers," the firm wrote in a note to clients Monday.
Oppenheimer gave Target a $190 price target, suggesting shares could gain as much as 15.4% from Monday's close. Shares of Target are up more than 10% this month.
— Pia Singh
The New York Stock Exchange announced that it will be canceling some of the early trades on Tuesday in stocks that failed to have a correct opening auction.
The exchange said that trades in the stocks that occurred before the volatility halts and were executed at prices outside of the existing percentage rules "will be declared null and void."
There were more than 200 stocks impacted by the technical issue, according to a list provided by the NYSE.
— Jesse Pound
The communications services sector experienced the largest decrease in short interest exposure during the fourth quarter, according to an analysis by S3 Partners.
Short interest exposure within the sector fell by $4.5 billion during the period. Healthcare and real estate saw the second and third largest decreases in short interest, falling by $3.5 billion and $1.3 billion, respectively.
Industrials, energy and consumer staples, meanwhile, saw the largest increases during the quarter.
Selling shares "short" occurs when investors borrow shares from a broker to sell and buying back at a lower price. The investor then profits from the difference.
Even with these shifts, information technology and consumer discretionary remain the two sectors with the largest short interest exposure on a dollar basis.
Across domestic markets, short interest increased by $10.2 billion, or 1.15%, to $899 billion in the fourth quarter, according to S3.
— Samantha Subin
The Dow gained 140 points, or 0.4%, as the final hour of trading commenced. The S&P 500 was flat, while the Nasdaq Composite last traded down 0.1%.
— Samantha Subin
The momentum for semiconductor stocks does not appear to be enough to create a three-day winning streak for the sector.
The VanEck Semiconductor ETF (SMH) was down 1% in afternoon trading on Tuesday. The stumble comes after a 4.72% gain on Monday and a 3.25% gain on Friday.
Advanced Micro Devices was one of the worst performers in the group, falling more than 3%.
The semiconductor group is seen as a bellwether for the market, given its cyclical traits and connection to the tech industry.
Rob Ginsberg of Wolfe Research said in a note to clients last week that chipmakers were "the single most important industry group to our market outlook."
— Jesse Pound
Even with worries that a U.S. recession is imminent, UBS sees travel holding up and boosting stocks such as Booking Holdings, Expedia and AirBnB.
"We continue to see the travel recovery holding up better than feared, despite concerns on how macro could weigh on leisure travel," analyst Lloyd Walmsley wrote in a Tuesday note.
UBS's top pick in the space is Booking Holdings, as it sees room nights increasing in the first quarter and a new leg in the recovery due to China's continued reopening.
"The ABNB setup looks better than the last several quarters, with lower Street ests on RNs and expected declines in ADRs heading into '23 with exposure to China outbound," Walmsley wrote.
"EXPE shares look cheap though we remain concerned on a potential investment cycle into loyalty point expansion and it has limited exposure to China outbound relative to mid-single digit % of RNs for both BKNG and ABNB pre-pandemic," he added.
On upcoming earnings calls, they'll be listening for management to address investor concerns of a consumer slowdown in travel.
— Carmen Reinicke
These are some of the stocks making the biggest moves during midday trading:
Bed Bath & Beyond — The retail stock jumped 13% as traders continued to pile into the heavily shorted name. Bed Bath & Beyond has warned of a potential bankruptcy and recently beefed up its legal team ahead of a possible filing. Shares of the meme-stock favorite are up 32% year to date.
Advanced Micro Devices — Shares slid 3.2% after Bernstein downgraded the semiconductor maker to market perform from outperform. The firm said the personal computer market and new parts markets were growing increasingly unfavorable for the company.
3M — Shares of the industrial conglomerate slid more than 5% to hit a new 52-week low after the company said it would cut 2,500 manufacturing jobs amid a demand slowdown.
Raytheon Technologies – Shares of the aerospace company added 2% after Raytheon posted its fourth quarter. Raytheon posted adjusted earnings per share of $1.27, compared with analysts' estimates of $1.24 per share, according to Refinitiv.
— Pia Singh
Technology stocks saw the largest one-day notional short covering since June on Monday, according to Goldman Sachs' prime brokerage data. Short covering happens with a short seller buys shares back in order to close out an open short position and cut losses.
The tech-heavy Nasdaq Composite jumped 2% on Monday as investors assessed a potential slowdown in interest rate hikes from the Fed. Goldman said the short covering activity was led by semiconductor stocks, tech hardware and IT services stocks. The VanEck Semiconductor ETF surging 4.7% Monday for its best day since November.
— Yun Li
The latest layoffs at software giant Microsoft will likely contribute to more conservative guidance when the company reports quarterly results after the bell Tuesday, according to Evercore ISI.
The firm said in a note to clients Sunday that despite confidence in Microsoft's "long-term narrative," it's preparing for "choppy" results from the software giant as it grapples with consumer weakness and a string of workforce cuts.
"As such, we expect that the headcount reduction announcement earlier this week will likely be accompanied by a lower revenue outlook for the second half of the FY," wrote analyst Kirk Materne.
Despite the likely comedown in estimates, Materne said that smaller-than-expected foreign exchange headwinds should help counteract some impacts to expectations for the 2023 and 2024 calendar years.
"At ~22x CY24 EPS, we believe a lot of the concern around a cut to the top line guidance is baked in, though we acknowledge that until the top line estimates are viewed as more 'de-risked' the shares are likely to remain range bound," he said.
Evercore ISI retained its outperform rating and $280 price target on shares, implying more than 15% upside from Monday's close.
— Samantha Subin
Alphabet declined nearly 2% Tuesday after the U.S. Justice Department filed its second antitrust lawsuit against Google in a little over two years.
The lawsuit, the first against the company filed under the Biden administration, calls for a breakup within Google's advertising business.
— Lauren Feiner, Samantha Subin
Current investors are massively undervaluing Caesars shares, according to Stifel.
The firm expects Caesars, the largest casino-entertainment company in the U.S., to see its midweek group and convention business return to pre-pandemic levels this year. LV Strip leisure demand and customer spending are also expected to remain healthy throughout this year, the firm said.
Stifel analyst Steven Wieczynski encouraged investors to revisit the stock, saying in a Monday note to clients that he expects these optimistic markers to outweigh Caesar's headwinds. Some of those issues include balance sheet concerns, sports betting growth issues, and consumer spending fears.
"While we can fully appreciate the fear that is out in the marketplace around the potential erosion of the consumer and the economy, we believe at this point the risk/reward in CZR is too compelling to ignore," Wieczynski said.
Stifel has reflected its bullish view by raising its price target for the stock, as well as EBITDA estimates by approximately 10%. Caesars shares are expected to further rise if the company turns a profit on its digital division.
The "potential rewards far outweigh the risks now," Wieczynski said.
— Hakyung Kim
Wells Fargo is bullish on Chipotle, which it called a "post-pandemic winner."
Analyst Zachary Fadem initiated coverage of the fast casual restaurant stock as overweight. His price target of $1,800 implies an upside of 12.7% from where the stock closed Monday.
"CMG offers many LT ways to win, and with sentiment seemingly weak, we see an attractive entry point," he said in a note to clients Monday.
CNBC Pro subscribers can read more about the call here.
— Alex Harring
Stocks on the S&P 500 are moving up and down in unison, a situation that while not unusual, poses danger should market momentum turn downward.
Thirty-day correlations among the five largest sectors in the large-cap index are at 0.91, meaning they are moving almost completely in lockstep, according to DataTrek Research. (A reading of 1 means exact correlation, while zero is no correlation and -1 is opposite correlation.) The average since 2018 has been 0.85.
"Stocks traded more in unison last year than usual because they faced the common concern of ever-higher interest rates and resultant economic risk," DataTrek co-founder Nicholas Colas wrote in his daily market note Monday evening. "High sector correlations create higher price volatility since every group is moving in relative unison. That is why we had so many 1 percent days last year."
Markets have been largely in rally mode in 2023, so the high correlation level has helped stocks under the "rising tide lifts all boats" trend. But should momentum head the other way, that could be trouble.
"Since correlations have not declined during the recent rally, they will quickly become a macro negative if/when markets turn," Colas wrote. "A rising tide is lifting all boats in similar ways just now, but when the tide goes out they will all tend to descend in unison as well."
— Jeff Cox
Lululemon shares dropped 2.8% following a downgrade to underperform from market-perform by Bernstein.
Analyst Aneesha Sherman said the fitness-wear company will see a "reset" after years of huge top-line growth. She also slashed her price target by $50 to $290, which implies the stock will fall 8.3% from where it closed Monday.
"The expectations vs. reality gap has been our biggest concern this past year," Sherman said in a note to clients Monday.
CNBC Pro subscribers can read more about her downgrade here.
— Alex Harring
Manufacturing and services activity slowed again in January as signs of a looming recession build.
Flash readings from S&P Global released Tuesday morning indicated both sectors in contraction. The services purchase managers index registered a 46.6 reading, up from 44.7 in December but still in contraction area. Likewise, the manufacturing reading was at 46.8, up 0.6 percentage points from the previous month.
Readings below 50 in the surveys indicate contraction as the indexes indicate the percentage level of businesses reporting expansion.
"The US economy has started 2023 on a disappointingly soft note, with business activity contracting sharply again in January," said Chris Williamson, S&P Global's chief business economist. "Although moderating compared to December, the rate of decline is among the steepest seen since the global financial crisis, reflecting falling activity across both manufacturing and services."
The reports also indicated that input prices rose in January after several months of softening trends.
— Jeff Cox
Computer glitches notwithstanding, stocks on Tuesday are once again following the mantra of what's good for the U.S. dollar is bad for equity prices.
The dollar is stronger and stocks are weaker, as per the recent trend. That was a point made in a report Monday by Morgan Stanley strategist Mike Wilson, noting "Many are pointing to a weaker dollar and China's reopening as positive drivers."
The idea there is that the "weaker dollar does provide some incremental relief on the earnings front," (although Wilson says it's limited.)
The trend in the dollar has been weaker so far in 2023, and the trend in stocks stronger. The Dollar Index (DXY) has fallen 10 days and risen on five, while the S&P 500 advanced on eight days and fell on 7.
Bearing in mind that the currency market has no fixed opening or closing time, nonetheless, on 10 of those 15 trading days (67%), stocks and the dollar were inversely correlated: when the dollar rallied, stocks sank and vice versa.
— Scott Schnipper
Dozens of stocks listed on the New York Stock Exchange were halted Tuesday due to a technical issue.
The stocks showed significantly large moves as the market opened and lead to brief volatility halts.
Some of the impacted stocks included Verizon, AT&T, Nike and McDonald's. many stocks resumed trading shortly after.
— Jesse Pound, Samantha Subin