Dow closes 260 points higher, Nasdaq notches fourth day of gains ahead of key

The attraction of emerging market value stocks — and emerging market stocks in general — continues to grow, according to the latest quarterly projection (as of 12/31/22) from Grantham Mayo Van Otterloo & Co.

Emerging market value stocks are likely to return a real 9.8% per annum over the next seven years, GMO said, up from 9.0% in the Boston-based money manager’s last notice.

Emerging market stocks as a whole are forecast to return 5.6% annually, up from 5.2% earlier. International small-cap stocks are now projected to return a real 5.2% (vs 4.5% previously) while international large-cap stocks come in at 3.2% a year instead of 2.4%, after inflation.

U.S. small caps will lag, shrinking 0.4% a year (instead of -1.4% seen last time), and U.S. large caps are now estimated to fall an average 0.7% annually over the next seven years (instead of the previous -1.8%).

The best returns in fixed income are expected to come in emerging market debt (up 4.1% a year vs a prior forecast of a real 3.5%), followed by U.S. cash at +1.2% (+0.8%), U.S. inflation-linked bonds at +0.9% (+0.3%) and U.S. bonds at 0.6% (vs a prior expectation of -0.3%). International bonds hedged against currency exposure are now forecast to lose 0.6% a year (-1.8%) a year.

One year ago, at the start of 2022, GMO pegged emerging market value stocks to return +5% annually over seven years, emerging market stocks +2.2%, international small caps -1.2%, international large caps -2.5%, U.S. small caps -6.5% and U.S. large caps -7.3%.

U.S. cash was projected to lose the least amount of money in the fixed income arena at the start of last year, falling 1.1% a year after inflation looking out over the next seven years, followed by emerging market debt at -1.7%, U.S. inflation-linked bonds (-3.7%), U.S. bonds (-4.1%) and currency-hedged international bonds (-4.7%).

— Scott Schnipper

Stocks finished higher Wednesday as investors optimistically positioned ahead of Thursday’s CPI report.

The Nasdaq Composite gained 1.8%, notching a four-day streak. A rally with that length has not been seen in the tech-heavy index since September.

The Dow ended up more than 260 points, or 0.8%.

The S&P 500 added 1.3%. All 11 of the broad index’s sectors ended the day up, led by real estate with a 3.6% gain.

— Alex Harring

Cowen is anticipating good fourth quarter results when Netflix reports next week.

The Wall Street firm is expecting the addition of 4.73 million net global subscribers in the quarter, 5.1% more than Netflix’s guidance of 4.5 million. Meanwhile, Cowen’s annual ad-buyer survey suggests a larger advertising opportunity over time, analyst John Blackledge wrote in a note Wednesday.

Netflix rolled out its new ad-supported plan in November. The company has said it expects membership in that tier to grow gradually over time.

“We view 4Q22 earnings and 1Q23 sub guide as a near term catalyst, as well as the launch of or any further announcements related to the ad supported pricing tier and paid sharing initiatives,” Blackedge said.

Further pricing increases could also act as a catalyst, he added.

— Michelle Fox

Natural gas hit a low in Wednesday trading not seen since 2021.

The commodity slid 1.1% to $3.598.

It fell at one point to $3.442. That’s a low not seen since June 24, 2021, when natural gas dropped to $3.415.

Natural gas has fallen 18.9% since the start of 2023.

— Gina Francolla, Alex Harring

The stock market continues to drift higher this week into Thursday’s key inflation reading, and that could make a negative surprise on inflation more painful for investors.

BTIG technical strategist Jonathan Krinsky said in a note to clients on Wednesday afternoon that the market may already be pricing in a positive report tomorrow, which could create some large selling if inflation is hotter than expected.

“As with any ‘binary’ event, it’s often the case that the price action prior to the event has an impact on the price action following the event,” Krinsky said. “In other words, some of the recent 3.6% rally over the last few days has likely dampened any upside surprise and created more potential for disappointment on the downside. Of course that doesn’t mean we will go down tomorrow, but just the opportunity for a bigger downside move would appear greater than an upside move, in our view.”

But if investors are preparing for an optimistic report tomorrow, they aren’t doing so with much conviction. Krinsky also pointed out that the volume on the Invesco QQQ Trust on Tuesday was at its lightest level since Thanksgiving.

Still, Jason Ray, founder of Zenith Wealth Partners, said investors have “never ending optimism” that the markets will perform better once the Fed gets the data it…