end of year thoughts (iii)

Stock market opinion seems to me to be divided between those who think that potentially weak 1Q23 earnings–no matter how well flagged by companies or securities analysts in advance–will cause serious new downward pressure on stock prices in the new year. Others, perhaps more traditional (i.e., more like me), think that some combination of investors reacting today to expected earnings declines plus the beating stocks have taken in 2022–meaning lower valuations–will mitigate the damage. This is a topic for next week.

We, however, have got to get to 2023 first.

I find current market action to be very unusual for December. As I see it, former pandemic stars that have been weak all year are breaking down again to lower lows …and on relatively low volume. Put a different way, sellers are highly motivated and buyers are few and far between. My interpretation is that individual investors have waited until the last possible moment before selling stocks they have steep losses on to establish losses for tax purposes. Un fortunately for these sellers, most potential institutional buyers have closed up shop for the year. So sellers have to transact at lower prices that they might if most professionals weren’t on vacation.

It will be interesting to see whether the new year brings a rebound in the names being pummeled this week or whether we still have to wait for a bottom in these stocks to be established. I’m in the rebound camp, but I’m always too optimistic.

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