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

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 needs to change course on interest rate hikes.

And Daniel Eye, chief investment officer of Fort Pitt Capital Group, said to expect “fireworks” within markets following Thursday’s CPI report regardless of the actual reading given how much investors have positioned themselves ahead of its release.

— Jesse Pound, Michael Bloom, Alex Harring

Despite Southwest‘s efforts to enhance operational quality coming out of its meltdown following Winter Storm Elliot, Susquehanna Financial Group says the stock is no longer worth buying.

The firm downgraded its rating to neutral from positive, citing risks rated to operations and its order book. The firm also said canceled flights would hurt capacity and, thus, revenue.

Still, Susquehanna sees the stock gaining 11% in the next year. The stock was down 0.4% following the downgrade Wednesday.

— Alex Harring

The three major indexes remained up as investors entered the final hour of trading.

The Dow was up about 200 points, or 0.6%. The S&P 500 advanced 0.9%.

The Nasdaq Composite traded up 1.2%, on track to post its fourth straight day of gains. That would be a first since September for the tech-heavy index.

— Alex Harring

The early returns on the winter shopping season have not been kind to all retail companies, but Bank of America remains bullish on Urban Outfitters.

Analyst Lorraine Hutchinson reiterated her buy call on the stock on Wednesday, saying in a note to clients that the company has worked through its pandemic supply chain problems.

“It is well positioned with cleaner inventory into F24 (C23), now that its agile supply chain is normalized,” the note said.

Bank of America also bumped up its price target on the stock to $32 per share from $30.

Shares of Urban Outfitters were trading up about 4%.

— Jesse Pound, Michael Bloom

The “60/40” portfolio, which references the strategy of having 60% of holdings in equities and 40% in bonds, had a difficult year in 2022 as the Fed’s interest rate hikes created a tough landscape for both areas of investing.

But Gina Bolvin, president of Bolvin Wealth Management Group, said she’s expecting a comeback for the strategy this year as the market changes.

“We think it’ll be a much better year for the 60/40 portfolio,” Bolvin said. “I know a lot of people think the 60/40 portfolio is dead. We think it’s going to be resuscitated.”

— Alex Harring

Shares of one under-the-radar pool stock rose more than 5% following an upgrade to a buy rating at Deutsche Bank.

Analyst Joe Ahlersmeyer said shares can rally nearly 30% as investors underestimate consumers’ continued spending on pools even after the pandemic lockdowns.

“While we may be a bit early and while the stock may be choppy around the 4Q22 print, we expect the shares to ultimately follow the fundamentals this year, and increased cash flow and buybacks should provide meaningful additional support for the shares to outperform,” he said.

CNBC Pro subscribers can see which stock got the upgrade from Deutsche Bank here.

— Samantha Subin

Brenda Vingiello, the chief investment officer of Sand Hill Global Advisors, outlined three of her top stock picks for 2023 on Wednesday’s “Halftime Report.”

Her first pick for the year is Boeing, which is trading higher today. It’s a top pick as it is well-positioned to take advantage of the upcoming boom Sand Hill sees coming in air travel, she said.

Second on the list is CVS, which she sees as “well-positioned within value-based care.” Health care is also one of the top sectors Vingiello is watching this year, so CVS is inline with an overall trend she sees growing.

Disney rounds out her top three list, even though it’s been “unloved” in recent years, she said. Still, she sees it as unmatched in its assets and in the lifelong relationship it keeps with consumers. Now that Bob Iger has returned as CEO, she sees brighter days ahead for the company and expects its streaming service to get closer to profitability in the coming years.

—Carmen Reinicke

Boston Fed President Susan Collins said Wednesday that she’s leaning toward a smaller rate hike at the central bank’s meeting later this month than traders may have anticipated.

“I think 25 or 50 would be reasonable; I’d lean at this stage to 25, but it’s very data-dependent,” Collins said in an interview with The New York Times. “Adjusting slowly gives more time to assess the incoming data before we make each decision, as we get close to where we’re going to hold. Smaller changes give us more flexibility.”

The Fed eased the pace of its rate hikes at the Dec. 13-14 meeting, raising rates just 50 basis points after multiple 75 percentage point increases.

— Fred Imbert

Bernstein downgraded Salesforce shares to an underperform rating, warning the company is entering a “growth purgatory.”

“With the tailwinds from M&A no longer enough, core markets approaching cloud saturation, competition increasing, and macro issues hitting growth, management is aggressively pivoting to driving margins,” wrote analyst Mark Moerdler in a note to clients. “But the cuts are going to negatively impact efficiency, growth, and customer/employee satisfaction.”

CNBC Pro subscribers can read more on the call here.

— Samantha Subin

These are the stocks making the biggest midday moves.

View our full list of movers for more.

— Tanaya Macheel

BlackRock will layoff about 500 employees, or about 2.5% of its workforce, as the world’s largest asset manager looks to streamline ahead of an uncertain year.

“Taking a targeted and disciplined approach to how we shape our teams, we will adapt our workforce to align even more closely with our strategic priorities and create opportunities for the immense talent inside the firm to develop and prosper,” CEO Larry Fink wrote in a Wednesday email to staff.

Even with the cuts, headcount will be about 5% higher than it was a year ago, according to the note. BlackRock grew its workforce by about 22% over the past three years, including a roughly 8% bump in 2022.

BlackRock shares ticked down slightly on the news.

—Carmen Reinicke

The three major indexes remained in the green as investors looked to the second half of the trading day.

The Nasdaq Composite led the way, gaining 1.1%. If the index remains up at close, it would mark the first four-day streak since September.

The S&P 500 and Dow also advanced, adding 0.7% and 0.4%, respectively.

— Alex Harring

Though stocks have advanced in the first few days of 2023, the head of equity strategy at Wells Fargo Securities is encouraging caution.

Chris Harvey said the current market is not one investors “want to chase.” The firm expects further downturn before the market truly improves, he said, with the S&P 500 hitting a low of around 3,400 points in 2023 before rising to 4,200 by the end of the year. That means the broad index will need to fall 13.2% from where it closed Tuesday, but could end the year up 7.2% from the same point.

“We just don’t think this is, for lack of a better phrase, the kiss to build a dream on,” Harvey said. “I would not be getting aggressive here at these levels.”

The bulk of downward pressure should come in the first half of the year, he added.

— Alex Harring

A group of so-called meme stocks skyrocketed Wednesday as retail investors jumped into speculative trades again.

Bed Bath & Beyond rallied a whopping 50% to trigger the trend in morning trading Wednesday. Shares of GameStop, the original star of 2021?s meme stock mania, climbed more than 10%. AMC Entertainment soared 18%.

While the short interest in these names has come down from its peak after the jaw-dropping episode, it still remains much higher than average.

— Yun Li

Macro headwinds in 2023 will eventually impact travel, but for now trends remain robust thanks to pent-up demand and a resilient consumer, according to Oppenheimer.

The firm upgraded Expedia to outperform on Wednesday. The stock is discounting current macro headwinds but not reflecting improvements to the company’s tech stack, the note said.

The Oppenheimer analyst also highlighted Booking Holdings in a note as its top pick, calling it “online travel’s cleanest story” into a volatile market, noting its lower earnings risk, reasonable valuation and buybacks.

— Tanaya Macheel

These are the stocks trading at 52-week highs on Wednesday.

• Darden (DRI) trading at levels not seen since Jan, 2022
• Tapestry (TPR) trading at levels not seen since Dec, 2021
• Ulta (ULTA) trading at all-time high levels back to its IPO in October, 2007
• Wynn (WYNN) trading at levels not seen since Nov, 2021
• SLB (SLB) trading at levels not seen since Oct, 2018
• Everest RE Group (RE) trading at all-time highs back to its IPO in Oct, 1995
• Caterpillar (CAT) trading at all-time high levels back to when it first began trading on the NYSE in 1929
• Snap-On (SNA) trading at levels not seen since June, 2021
• First Solar (FSLR) trading at levels not seen since Feb, 2011
• Wrestling Entertainment (WWE) trading at levels not seen since Apr, 2019
• Aramark (ARMK) trading at levels not seen since Feb, 2020
• Five Below (FIVE) trading at levels not seen since Jan, 2022
• Grand Canyon Education (LOPE) trading at levels not seen since Sept, 2019
• Affiliated Managers Group (AMG) trading at levels not seen since Jan, 2022
• BioMarin (BMRN) trading at levels not seen since Aug, 2020
• Lincoln Electric Holdings (LECO) trading at all-time highs back to when it listed on the NASDAQ in 1995
• Toro Company (TTC) trading at levels not seen since May, 2021

—Carmen Reinicke, Chris Hayes

Warner Bros. Discovery got upgraded to a buy from a neutral rating by Guggenheim, which said that the risk-reward looks attractive at these levels.

“We see an attractive narrative for the first half of 2023, with the impact of a recently announced domestic affiliate renewals, strong cost controls, and the upcoming launch of a restructured Max product as key catalysts,” analyst Michael Morris wrote in a note to clients Wednesday.

“Cost discipline at direct-to-consumer in particular should bolster confidence in the company’s ability to meet consensus 2023 EBITDA estimates and de-leveraging goals,” he added.

Morris established a $16.50 price target on shares, implying more than 31% upside from Tuesday’s close. The stock shed 60% in 2022.

While cord-cutting and slowing advertising spending linger in 2023 and could pressure revenues within its networks segment, shares look attractive at the current multiple, trading at 5 times 2024E EBITDA and 6 time 2024 free cash flows, Morris said.

“However, we do see ~200bps of sequential improvement in distribution revenue trends in the new year with the renewal of ~30% of the domestic affiliate base and the potential for further support as the balance of the base is renewed over the next several years,” he wrote

— Samantha Subin

Bullish sentiment in the latest weekly survey of financial newsletter writers rose to 41.4% from 36.6% last week, according to Investors Intelligence. Bulls neared the December high reading of 43.3%, which itself was close to the mid-August high of 45.0%.

“Bull counts in the mid-40’s are not yet suggestive of tops. Our rules say above 55% bulls puts the defense back on the field,” Investors Intelligence said.

Bearish views dipped to 32.9% from 33.8%, while those advisors foreseeing a short-term correction declined to 25.7% from 29.6%. The “bull-bear spread” stayed positive for an eighth week, to +8.5 from +2.8 last week.

“Modest positive differences, after negative counts, are bullish for stocks,” II said.

— Scott Schnipper

The S&P 500 posted the largest number of daily moves of at least 1% in either direction since 2008, underscoring the volatility seen in the stock market last year, according to data analyzed by Charles Schwab.

The broad index moved either up or down 1% or more in just over 120 trading days. In 2008, which was the last time that number of days was exceeded, the index posted daily moves of that size in more than 130 trading days.

Those swings reflect the choppy trading landscape seen in 2022. The S&P 500 lost 19.4% in the year as investors grew increasingly wary of a possible recession.

The index has gained 2.1% so far in 2023.

— Alex Harring

Levi Strauss shares dipped more than 2% before the bell after Citigroup analyst Paul Lejuez downgraded the jeans maker to neutral from a buy rating.

“While LEVI is a strong brand with good global prospects long-term, in the near to medium term we expect a challenging U.S. backdrop characterized by weaker denim trends to pressure results,” he wrote in a note to clients Wednesday.

CNBC Pro subscribers can read more on the call from Citi here.

— Samantha Subin

These are the stocks making the biggest moves in premarket trading.

For more, check out the full list here.

— Tanaya Macheel

Thursday’s consumer price index report could show inflation running at a hotter pace than Wall Street expects, according to a Cleveland Fed gauge.

The central bank’s Inflation Nowcasting tracker is pointing to headline CPI increasing at a 0.1% monthly pace, while core, excluding volatile food and energy prices, is indicating a 0.5% gain.

Both numbers are ahead of the Dow Jones consensus estimates for a decrease of 0.1% on headline and gain of 0.3% on core.

On an annual basis, the Cleveland Fed model is pointing to a 6.6% headline gain and 5.9% for core, compared to respective Dow Jones estimates of 6.5% and 5.7%.

—Jeff Cox

Bank of America downgraded Coinbase to underperform from neutral, pushing the stock down 4% in the premarket.

“While it is encouraging that COIN is remaining nimble on expenses while navigating its first crypto winter as a public company and seeking to preserve balance sheet liquidity, … we think consensus revs for ’23 could be way too high,” Bank of America said Wednesday.

— Samantha Subin

CarMax shares slid 3% after JPMorgan downgraded the used car seller underweight from neutral, saying investors aren’t fully pricing in the risks surrounding the company.

“To be clear, we believe KMX is likely to be a long-term share gainer in the used car market and see investments over the last 3 years ultimately bearing fruit,” JPMorgan said. “However, the path to realizing this potential continues to get pushed out making it difficult to discount the timing and magnitude of normalized margins.”

— Samantha Subin

European markets opened mixed as investors gear up for more inflation data this week, with U.S. consumer price data for December due Thursday.

The pan-European Stoxx 600 index was up 0.1%, with sectors and major bourses showing a mixture of marginal gains and losses. Mining and retail stocks saw the largest uptick, both up 0.9%, while construction led minor losses, down 0.4%.

– Hannah Ward-Glenton

DoubleLine Capital CEO Jeffrey Gundlach said in a webinar on Tuesday that he “tremendously” favors non-U.S. stocks in 2023.

One reason Gundlach is bullish on emerging markets in particular is currency impacts. The dollar rose sharply last year as the Fed hiked rates, but the investor said he expects that to reverse.

“I think the dollar is headed lower,” Gundlach said.

Read more about Gundlach’s market outlook on CNBC Pro.

— Jesse Pound, Yun Li

Wells Fargo is shrinking its footprint in the mortgage market as the bank manages regulatory pressure and the impact of higher rates on housing.

Wells Fargo, which at one point was the biggest mortgage lender in the country, will now limit home loans to existing customers and borrowers from minority communities.

The changes will make Wells Fargo closer in shape to rivals like JPMorgan Chase and Bank of America, which had previously pulled back from home loans.

Shares of Wells Fargo were down less than 1% in extended trading.

— Jesse Pound, Hugh Son

It was a sleepy open for equity futures, with contracts for the three major averages all drifting less than 0.1%.

— Jesse Pound

Wall Street put together another positive session on Tuesday. Here’s a look at how the major market averages are faring so far this year.

• The S&P 500 rose 0.70% on Tuesday and is now up 2.08% for the year.
• The Nasdaq Composite rose 1.01% on Tuesday and is now up 2.64% for the year.
• The Dow Jones Industrial Average rose 0.56% on Tuesday and is now up 1.68% for the year.
• The small-cap Russell 2000 rose 1.49% on Tuesday and is now up 3.49% for the year.

— Jesse Pound