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Before the worst: Stock losers of 2022 are leading the market this year

New York CNN –

The stock was slightly lower on Monday after a solid rally last week. This week’s big Federal Reserve meeting, a flurry of earnings from top tech firms and a jobs report on Friday could make investors jittery.

But it’s still been a solid start to the year for the market — and many of last year’s losers have led the way on Wall Street so far in January.

According to data from S&P Global Market Intelligence, the communications sector, with its many hard-hit tech and media companies, is by far the best-performing market group in 2023: It is set to rise nearly 10%. It was the worst performing sector in 2022, declining by 40%.

CNN owner Warner Bros. Discovery, which fell nearly 60% last year, is up 55% so far in 2023 and is the best performer in the S&P 500.

Several other media companies, old and new, have also enjoyed a resurgence this month. CBS owner Paramount soared 36%. Disney (DIS) is up 25%. Netflix (NFLX) is up more than 20%. (So ​​much for the death of streaming media?) Shares of Meta Platforms, the owner of Facebook and Instagram, are also up 25%.

Consumer discretionary stocks, which include many retailers and auto companies, have also enjoyed a surprising comeback after declining last year. This sector was the second worst performing sector with a loss of around 38% in 2022.

Just look at Tesla (TSLA). Elon Musk’s electric vehicle giant is up nearly 45%. It also had a miserable 2022, losing nearly two-thirds of its value last year.

Investors are buying on hopes that the Fed will continue to scale back the size of its rate hikes after several historically large hikes last year and possibly pause later this year. Increasingly, the feeling is that the economy may be heading for a so-called soft landing: a recession but not a full recession.

Those hopes have boosted other consumer stocks. Amazon (AMZN) is up nearly 20% this year. Cruise line owners Carnival (CCL), Royal Caribbean (RCL), and Norwegian (NCLH) are among the S&P 500’s top performers. So are the shares of casino companies Caesars (CZR), Wynn (WYNN), Las Vegas Sands (LVS). and MGM (MGM).

Still, some investors are worried that the market rally this year is reminiscent of past market bubbles.

This is because it is not just quality companies that are reaping the benefits. The resurgence is evident in meme stocks as well. GameStop (GME) is up nearly 25%. Movie theater chain AMC (AMC) soared more than 25%. Crypto brokerage firm Coinbase has skyrocketed nearly 70%, despite rival FTX and Coinbase’s own announcement of massive layoffs. Coinbase gets a boost from the rebound in bitcoin price.

Then there are companies like Bed Bath & Beyond (BBBY) and Carvana (CVNA), both of which posted solid gains this year, although there have been rumors of possible bankruptcy filings. Even if these companies survive Chapter 11, it is clear that they are in trouble financially.

In a recent report, Steve Sosnik, chief strategist at Interactive Brokers, said, “We’ve seen the front lines of speculation.” Sosnik, without mincing words, has labeled the rally in these types of companies a “flight of the crap”.

Others worry that if the stock market turmoil persists, it will prompt the Fed to raise rates more aggressively than investors expect: , the more likely it will be.” “The Fed will be more aggressive with rate hikes,” said David Trainor, CEO of New Constructs, an investment research firm, in a report.

“Most investors don’t realize that the Fed has to fight inflation in the stock market as well,” Trainor said. “This means investors need to buy stocks with good fundamentals and real cash flows and sell the unprofitable, narrative-driven stocks that have made headlines over the past few years.”




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