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Why Last Year's Losers Are Still Losing -- WSJ

The Wall Street Journal · 01/06/2023 09:00

By Spencer Jakab

Turn those lemons into lemonade before they rot on the vine.

Last year was the worst for American stocks since the global financial crisis of 2008--and, by one measure, the worst for a typical investor's 60/40 stock-and-bond portfolio since 1937, the heart of the Great Depression. The upshot of stock losses is that they provide investors with a tax loss, spurring end-of-year selling. Fund managers also dump losers out of embarrassment so they don't show up in their holdings at quarter's end.

The phenomenon is one explanation for the "Santa Claus Rally (https://www.wsj.com/articles/santa-claus-rally-remains-elusive-for-stocks-11672835076)" that typically lifts stocks from just before Christmas through the start of the year. It is also behind the January effect that, among other things, sees losing stocks from the previous year shine in January. As Chris Senyek of Wolfe Research points out in a Friday note, those losers shouldn't be chased for long: The typical pattern sees poor performers shine in January and then again lag the market the rest of the year.

Even that doesn't seem to be happening this year for some of the most prominent duds. Tesla, widely owned by retail investors and a huge loser in 2022, has shed another 15% or so of its value between the last session before Christmas and premarket trading Friday. Amazon.com is off by nearly 3% (https://www.wsj.com/articles/amazon-needs-to-become-a-slower-growth-wonder-11672892333) over the same period, while crypto champion Coinbase Global is down by around 7%. The absolute worst performer in the S&P 500, Generac Holdings, has at least generated a bounce, rising a little over 6% since before Christmas.

Granted, last year was simply awful by most measures. Outside of energy and safe havens such as pharmaceuticals and food (https://www.wsj.com/articles/conagra-is-your-food-value-play-for-2023-11672936685), most stocks gave investors a lump of coal in 2022. That wave of selling might have been less for tax planning and more because last year's losers deserved to be dumped.

This analysis comes from the Journal's Heard on the Street](https://www.wsj.com/news/heard-on-the-street) team. Subscribe to their [free daily newsletter here (https://www.wsj.com/newsletters?sub=203&mod=djemHeardEUH).

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January 06, 2023 09:00 ET (14:00 GMT)

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