Dow rises around 300 points as investors shake off weak tech earnings, assess pace of Fed rate hikes

What’s driving markets

The S&P 500 has jumped 5.7% since Thursday’s close as a generally positive third quarter earnings season, and hopes the Federal Reserve may be less aggressive in hiking rates after weak economic data and the Bank of Canada’s smaller-than-expected rate rise.

Also helping to boosting the positive sentiment is the continued slide on Wednesday in bond yields
TMUBMUSD10Y,
4.009%
and the dollar
DXY,
-1.04%.

“I think it’s reasonable to believe that the Fed will slow (its rate hikes),” said Larry Cordisco, co-chief investment officer at Osterweis Capital Management. However, “where I think there may be too much hope in the market with people seeing the pause as sort of a way station on the way to a pivot,” Cordisco said.

“I just think the Feds going to be very reluctant to pivot, even if the economy’s in a bit of a recessionary period as long as inflation remains high. It’s tough to see how inflation comes down rapidly to their 2% target side,” Cordisco said.

Speculation has mounted over the potential for the Federal Reserve to reduce the size of its rate increases in December after delivering what’s expected to be another supersize 75 basis point jump when policy makers meet next week.

The Bank of Canada’s decision Wednesday to raise its key overnight lending rate by 50 basis points, or half a percentage point, to 3.75%, was seen reinforcing that expectation, analysts said. Nine of 12 economists surveyed by The Wall Street Journal had forecasted a 75 basis point rise.

The move suggests that central banks are starting to wake up to the possibility that too aggressive rate rises could do more harm than good,” said Michael Hewson, chief markets analyst at CMC Markets UK, in a note. “It’s also got markets asking the question, could the Fed follow suit next week after another poor set of housing numbers from the U.S.”

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Still, the tech-heavy Nasdaq Composite was on course to snap a three-day winning streak after poorly-received earnings reports from Microsoft
MSFT,
-5.96%
and Google parent Alphabet
GOOG,
-6.70%.
Shares of both were trading at least 5% lower.

For Alphabet, advertising on both Google and YouTube was “a bit softer than what people wanted, even when you take into account foreign exchange headwinds,” said Cordisco. “That’s a sign of economy decelerating a little bit.”

Attention will next turn to results from Meta
META,
-2.66%,
due after the market close, and then Apple
AAPL,
-0.42%
and Amazon.com
AMZN,
-1.78%
on Thursday.

Read: U.S. dollar rally takes a breather as currency slumps versus major rivals

In U.S. economic data, the trade deficit in goods widened 5.7% in September to $92.2 billion as a strong dollar hindered exports.

Companies in focus

• Boeing Co.
  BA,
  -3.56%
  shares were down 0.1% after the aircraft maker reporting a widening third-quarter loss and revenue that missed analysts’ estimates by almost $2 billion amid what the company’s CEO described as a “challenging environment.”

• Visa Inc.
  V,
  +5.21%
  shares rose 5.8%, after the company topped earnings expectations for its latest quarter Tuesday. Payments volume at grew 10% in the fiscal fourth quarter, while processed transactions increased 12%. Visa’s revenue rose to $7.79 billion from $6.56 billion and came in ahead of the FactSet consensus, which was for $7.55 billion.

• Chipotle Mexican Grill Inc.
  CMG,
  -3.46%
  shared slid 2.8% after the restaurant chain on Tuesday reported continued growth, with third-quarter profit beating analysts’ expectations, though its price increases have caused lower-income customers to pull back.

• Skechers USA Inc.
  SKX,
  -4.06%
  shares dropped 3.8% after the maker of sneakers missed profit expectations for its latest quarter and delivered an outlook that came in below the consensus view.