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Need to Know: Their trash, your treasure. These tossed-out stocks could be your best foot forward for 2023, says strategist

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There’s green on the equity futures screens for Monday, and that may come as a relief to those braced for more selling after the S&P 500 fell to a five-week low on Friday.

If that rout was caused by quadruple options expiration as some believe, then investors will see that reverse to start the week, says Matt Maley, Miller + Tabak.’s chief market strategist.

“However, if this is not the case…and we see ANY downside follow-through…it’s going to raise some serious red warning flags for the stock market,” he told clients. Strategists like Maley are particularly wary after the index failed to break above its important 200-daily moving average last week, and he says 3,200 or lower can’t be ruled out if downside sticks.

Miller + Tabak

So how to salvage a year that feels like one lump of coal after another? How about harvesting some tax-loss castoffs.

That’s the advice from our call of the day, provided by Julian Emanuel, chief equity and derivatives strategist at Evercore ISI and his team, who are referring to that traditional end-year process in which investors sell their stock losers to reduce capital gains elsewhere.

Stocks that have “endured historic tax-loss selling pressure yet have favorable earnings, short interest and price momentum profiles headed into the New Year could prove to be ‘gifts’ for patient long term investors,” says Emanuel and the team.

“Such stocks were swept lower by the tidal wave of selling that pushed indexes to new bear market lows in October, into the traditional mutual fund year-end tax-loss selling window,” said Evercore strategists. “While tax-loss selling season remains under way for retail investors whose accounting year ends in December, opportunities have begun to materialize.”

They screened for so-called “gift boxes” stocks across the Russell 3000, a benchmark for the entire stock market, looking out for characteristics such as:

deeper-than-average drawdown from pandemic peaks, still underperforming year to date

signs of stabilization since October lows,

2023 profitability and upward earnings per share (EPS) revisions

short interest in upper half of respective 2-year range

Higher EPS revisions are in contrast to lowered estimates for the broader market, offering what Emanuel calls a “degree of Alpha defense into 2023,” when they see EPS overall falling 7% as hawkish Fed intentions “catalyzes the earningsand economic recession, ultimately resulting in a “cathartic fat pitch” buying opportunity at midyear.”

What’s on their list? Snowflake, Airbnb, Paycom Software, eBay and Pinterest are in the top five. Here’s the rest:

Evercore ISI

Opinion: Rebalancing your stocks and bonds too much could cost you more than it’s worth

The markets

Stock futures
ES00,
+0.31%

 
YM00,
+0.20%

 
NQ00,
+0.43%

are rebounding after Friday’s drop, as the dollar
DXY,
-0.09%

heads south and long-term Treasury yields
TMUBMUSD10Y,
3.553%

are higher, but hovering near three-month lows. Oil prices
CL.1,
+0.48%

are also firmer, while global recession worries knocked China
HSI,
-0.50%

 
000300,
-1.54%

and Japan stocks
NIK,
-1.05%
.

For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.

The buzz

FedEx
FDX,
-0.84%

and Nike
NKE,
-2.36%

will report Tuesday — along with General Mills
GIS,
-0.02%

— and could offer some clues on holiday-spending strength.

Read: The No. 1 ‘set and forget’ stock in tech hardware for next year? You guessed it.

The European Union has accused Meta
META,
+2.82%

of breaching antitrust rules by allegedly distorting competition in the markets for online classified ads.

China has reported just two COVID deaths , despite a surge in cases, raising questions over its data collecting.

Twitter quickly reversed a controversial decision to ban accounts that promoted rival platforms, while 58% of users have said they want Elon Musk to step down as CEO. Tesla shares
TSLA,
-4.72%

are up 4% in premarket.

The National Association of Home Builders’ Housing index is coming after the open in a week that will bring more housing data, along with more important inflation data.

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The chart

Three ways this stock market could go next year from @lanceroberts

Twitter

Read more on that from Lance Roberts here.

The tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

Ticker

Security name

TSLA,
-4.72%

Tesla

COSM,
+178.91%

Cosmos Holding

GME,
+1.07%

GameStop

MULN,
-3.82%

Mullen Automotive

AMC,
-5.18%

AMC Entertainment

NIO,
-2.36%

NIO

AAPL,
-1.46%

Apple

AMZN,
-0.67%

Amazon

BBBY,

Bed Bath & Beyond

APE,
-10.04%

AMC Entertainment Holdings preferred shares

Random reads

Never take your seat belt off. 11 injured after severe turbulence rocks flight to Hawaii.

Better hit the road now. A massive winter storm is headed for the U.S. just ahead of Christmas.

Sharks have waited nearly 50 years for this apology from Steven Spielberg.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passy and economist Stephanie Kelton.

Kelley Blue Book: Car shoppers face the tightest credit market in more than a year, but there’s good news

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