end of the year thoughts (ii)

Big institutional investors, i.e. pension funds, ETFs and mutual funds, hedge funds…, understand that their full-year performance for 2022 is already set in stone and that any last-minute moves are at least as likely to make things worse than better. So they’ve pretty much all gone home for the year.

For individuals, we typically have positions that can be sold in an instant, rather than over weeks or months, so there’s still time for 2022 income tax planning by recognizing capital gains/losses. By default, we tend to be on center stage between now and yearend. I’ve always liked this period, on the thought that there may be a chance to pick up bargains created by thin trading.

It seems to me that there’s an unusually wide spectrum of opinion about what 2023 will bring for equities. The consensus seems to center around the idea that stocks will be little changed from today’s prices a year from now. Where strategists differ widely is in how we get there, some calling for a sharp decline in the first half, followed by a relief rally, some calling for the opposite.

It seems to me that the idea of no net change in twelve months is the least likely outcome. More about this tomorrow.

I’ve been paying what may be a more-than-healthy amount of attention to stay-at-home stocks like ZM and ROKU. I don’t own either. What interests me is that, while many pandemic beneficiaries have stabilized over the past quarter or so, these two 2020-21 mainstays haven’t. Both reached 52-week lows yesterday.

Is this important? Maybe–not definitely, but maybe.

Wall Street lore says that the bear market isn’t over “until the last bull capitulates.” The idea is that a new up market can only be built on the ashes of the old … after a broad selloff of the previous up market stars. This has by and large happened in 2022 during S&P declines in June and again in September/October. But ZM and ROKU, important 2020-21 bull market stocks, have not stabilized, and have continued to fall since then. Purists would argue that this oasis of residual bullishness is enough to prevent a new bull market from developing. I’d be happier if one or both were bottoming, but my sense is their performance is more an argument that the market in 2023 probably won’t be strongly up rather than that further declines are on the cards. Again, more tomorrow.

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