Dow jumps 300 points to rise for a fourth day as investors shake off disappointing tech

The Bank of Canada surprised traders on Wednesday by raising its benchmark rate by half a percentage point, below expectations for a three-quarters of a point hike.

Yields for Canadian government debt were sharply lower for the session. The Canadian dollar gave up most of its gains for the day against the U.S. dollar.

“The Bank of Canada has shocked us with only a 50 bps rate hike to 3.75% instead of to 4% that [was] expected while continuing on with QT. There was no color in the statement as to why they unexpectedly downshifted to a 50 bps increase after going 75 bps in September and 100 bps in July,” Peter Boockvar of Bleakley Advisory Group said in a note to clients.

The prevalence of adjustable rate mortgages in Canada may have been one reason why the central bank slowed its hikes, Boockvar said.

The Bank of Canada said in its statement that it expects to raise rates further in the future but that “the effects of recent policy rate increases by the Bank are becoming evident in interest-sensitive areas of the economy.”

— Jesse Pound

The Dow and S&P 500 started upward ascents as investors shook off the first round of tech earnings.

The Dow was up 223 points, or 0.7%, after opening near the flatline.

The S&P 500 was up 0.2% despite starting the day down.

The latest weekly Investors Intelligence survey of financial newsletter editors shows bullishness rising to 36.9% from 31.3% a week ago and a 6-year low of 25% the week before that.

The bearish percentage moved down to 38.5% from 40.3% the prior week (and 44.1% two weeks ago — matching the June 2022 high), and outnumbered bulls for a sixth straight week.

All that signals “plenty of cash on the sidelines,” according to II.

The improved stock market pushed down the number of advisors forecasting a correction to 24.6% from 28.4% last week.

The spread between bulls and bears narrowed to -1.6 points from -9.0 last week and -19.1 two weeks ago (which was the largest negative spread since 2009). The June 2022 spread was -17.6 and in March 2020 it was -11.6.

The wider the negative spread, the less risk investors find in the market, II says. Conversely, the wider the positive spread, the greater the risk. In the summer of 2021, for example, the positive spread between bulls and bears was 40.5-45.9. Anytime the positive spread rises above 30 signals “elevated risk,” according to the II model.

— Scott Schnipper

New home sales fell 10.9% in September from the prior month to a seasonally adjusted annualized rate of 603,000 units, according to the Commerce Department. New home sales were expected to fall 13.4% to 593,000 units, according to consensus estimates from the Dow Jones.

— Sarah Min

Home improvement stocks are preparing for tougher times ahead, according to Bank of America.

“Stocks appear to be pricing in a draconian outlook,” wrote analyst Elizabeth Suzuki in a note to clients Wednesday. “We determine that the current valuation multiples of home improvement retailers HD, LOW, and FND are baking in a more severe 2023 home improvement demand environment than our base case, albeit to varying degrees of bearishness.”

Suzuki expects spending to take a pause in 2023, flattening over 2022 and suffering most between October and March 2023 as consumer spending dips and mortgage rates pressure the housing market.

Looking ahead, she views Floor & Decor Holdings as most at risk among home improvement stocks given the stark drop in its price-to-earning ratio from an average of 40.9 times between 2017 and 2019 to 20.9 times next year’s earnings.

Despite these headwinds, Suzuki maintained her buy ratings on the stocks. Shares of all three have plummeted more than 25% this year, with Floor & Decor down nearly 43%.

Suzuki’s base case fails to account for a housing crisis similar to the one experienced between 2007 and 2009. Should one hit — and demand return to pre-pandemic levels — she expects a 25% year-over-year decline in retail sales for the industry.

Estimates for Lowe’s and Home Depot next year have already baked in a downdraft in earnings coming in 20% and 6% below Bank of America’s estimates, respectively.

— Samantha Subin

Two of the three major indexes opened down, marking a shift from the past three days of rallies.

The S&P 500 was trading down about 0.7%. The tech-heavy Nasdaq, weighed down by disappointing tech earnings, was down 1.6%.

The Dow was near flat as Visa’s strong quarter boosted the index.

— Alex Harring

Goldman Sachs downgraded Silvergate Bank on Wednesday to neutral from buy, after the company reported quarterly earnings that showed a drop-off in customer deposits. The crypto bank’s shares fell about 2% in early morning trading.

Both Silvergate and Signature Bank, another company that primarily serves cryptocurrency businesses, saw a decline in deposits as well as transaction activity on their respective payments networks as crypto prices have remained depressed and volatility low in recent weeks.

“We believe greater uncertainty about the trajectory of deposit growth, combined with reduced interest rate sensitivity, primarily as a function of the company’s hedging program, will likely prevent shares from outperforming,” the firm’s Will Nance said in a note. “We would look for a stabilization of SI’s deposit base, or an increase in overall crypto activity levels and volatility, as this would reduce uncertainty around the balance sheet size.”

— Tanaya Macheel

General Motors‘ big third-quarter earnings beat has prompted Morgan Stanley to hike its price target on the stock to $32 from $30.

The Detroit automaker’s adjusted earnings per share was $2.25, compared to Refinitiv’s estimate of $1.88. However, its record $41.89 billion in revenue came in slightly below expectations of $42.22 billion. GM also reiterated its full-year guidance.

“We see an opportunity for GM to remain ‘in the game’ for [electric vehicles] while slowing its roll on investment at a time when the prices of most EVs are well out of reach for GM’s core consumer audience,” analyst Adam Jonas wrote in a note Tuesday. “GM’s ability to ‘elongate’ the useful life of its increasingly scarce and highly profitable [internal combustion engine] assets will play a key role in supporting GM share price and profitability medium term.”

Morgan Stanley’s price target implies more than 13% downside from Tuesday’s close.

Bed Bath & Beyond shares dropped 6.4% in pre-market trading after the company announced its interim CEO would take the role permanently.

Sue Gove was named interim CEO this summer after the company’s board pushed out his predecessor, Mark Tritton.

Gove took the helm as the company has looked to turn its business around going into the holiday season. Shares are down 63.7% this year and nearly 86% from the pandemic high.

— Melissa Repko, Alex Harring

As corporate earnings season continued, companies reporting continued to impact stock performance.

Among them today:

• Boeing: The plane maker traded up 1% in the premarket despite reporting a quarterly loss and revenue below expectations.
• Hilton: Shares of the hotel company increased 2% after reporting better-than-expected quarterly earnings. The company also increased its full-year forecast, saying it continues to benefit from strong demand to travel coming out of the pandemic.
• Visa: The financial services company was up 1.8% after beating profit and revenue expectations.
• Mattel: Shares of the toy maker dropped 5.5% after it cut its full-year forecast and revenue came in below expectations.
• Harley-Davidson: The company was up 2.5% following its report that it beat earnings estimates. The company attributed performance to an increase in shipments and better pricing.

See the full list here.

— Peter Schacknow, Alex Harring

Dow futures traded near flat, turning slightly positive at points, as markets took a hit coming off the first round of Big Tech earnings.

Futures for the Dow were buoyed by Visa and other companies that beat expectations, coming as some have increased optimism for earnings season given already slashed expectations for many companies. Futures for the Nasdaq 100 were pushed down by disappointing Alphabet earnings and Microsoft guidance.

— Alex Harring

Boeing shares fell about 1% after the aerospace giant posted a surprise quarterly loss along with disappointing quarterly revenue.

The company lost $6.18 per share, while analysts expected a profit of 7 cents per share. That loss includes charges in Boeing’s defense unites. Boeing also posted revenue of $15.96 billion, well below a Refinitiv forecast of $17.76 billion.

Read more here.

— Leslie Josephs

Correction: Analysts expected a profit of 7 cents per share from Boeing. A previous version misstated the consensus estimate.

Mortgage applications decreased 1.7% compared to the prior week, according to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey released Wednesday.

Mortgage rates continuing to rise for the 10th week in a row has depressed demand to its slowest pace since 1997, according to Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association. Market observers watch mortgage application rates as one indicator of the financial health of general consumers.

Meanwhile, the share of mortgage applications that includes refinancing increased to 28.8 percent from 28.3 percent the previous week. Refinancing increasing can be interpreted to signal growing challenges for consumers.

Read more here.

— Alex Harring

Kraft Heinz jumped 2.6% in pre-market trading after the company announced its third-quarter earnings beat expectations before the bell.

Earnings per share came out to 63 cents, beating analyst consensus expectations of 56 cents.

A revenue of $6.51 billion also came in above expectations of $6.27 billion.

The company said the performance stemmed from improvements in its ability to manage supply and services amid volatility.

— Alex Harring

Wall Street analysts covering Microsoft maintained their buy ratings on the stock, but several noted that the tech giant’s near-term prospects look a bit murkier.

Many analysts lowered their 12-month price targets on Microsoft after the company posted its latest numbers.

Piper Sandler’s…