Brian Sozzi·Anchor, Editor-at-LargeJanuary 31, 2023, 6:39 AM·3 min readInvestors have had a slew of downbeat headlines to kick off 2023.
Eye-popping layoff news from tech stalwarts Amazon, Microsoft, Salesforce and 3M. Chip giant Intel reported another tough outlook amid a major slowdown in PC demand. Ford and Tesla slashing prices on EVs as the economy has cooled. Signs that inflation continues to slow — but not at such a rapid pace as to suggest rate cuts from the Federal Reserve later this year. Earnings are meh.
And yet stocks are off to a surprisingly solid start to the year.
As of this writing, the Nasdaq Composite has posted a nearly 9% gain so far in 2023, per Yahoo Finance data. The S&P 500 and Dow Jones Industrial Average have clocked in with 4.65% and 1.7% advances, respectively.
It's unclear if January will be as good as it gets for stocks this year or the party will continue — in any case, the action has been interesting to watch. Here are a few interesting stats from 2023 served up by astute market strategist Keith Lerner at Truist:
The 50 worst-performing stocks of 2022 are up an average of 20.1% so far this year, according to Lerner's research. The 50 best-performing stocks from last year, meanwhile, are up an average of only 1.9%.
"We view this as most likely a short-term reversion of oversold stocks as opposed to new market leadership or a fundamental shift," Lerner says.
Analyst earnings estimates for the S&P 500 have ticked down to an 11-month low, Lerner noted. So, the advance in stocks has been fueled by rising price-to-earnings multiples — likely on the hope the Fed halts its rate hikes mid-year.
The S&P 500’s forward PE ratio has jumped back to 17.9 times, near the peak level of 18.0x-18.5x it traded to over the past decade outside of the pandemic highs.
"While this is typical during the early stages of a new bull market, since prices tend to advance well before earnings and the economy turn up, we remain skeptical," Lerner wrote. "Our view is investors, as reflected in rising valuations, are placing too high of a probability on a soft economic landing and leaving little margin for error."
Going back to the previously out-of-favor stocks...
Lerner notes that "remarkably," all 50 of last year’s worst-performing stocks are up in 2023.
The appetite to buy these names has led to "indiscriminate buying", Lerner says.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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