Retail capitulation could be a New Year’s gift for the stock market, this analyst says

What normally happens at this time of year is investors selling losing stocks to help offset capital gains elsewhere, points out Eric Liu, co-founder and head of research at Vanda Research. . The proceeds are then reinvested, with exchange-traded funds being a vehicle of choice for investors to maintain exposure.

But not so much this year, notes Liu:

This is “retail capitulation,” which is actually a positive development for the markets, Liu says. That puts US equity retail positioning at a low level for 2022 – about as attractive as it has been all year.

But what Liu sees as crucial to the next leg up in equities is the so-called fast-money community – hedge funds and systematic or quantitative investors – who have stayed away for a while. most of the last seven months:

What could change that? A market-friendly Fed meeting and CPI data that doesn’t raise concerns for one, Liu said. Even that may not be enough to attract these managers in just seven trading days before the Christmas holidays.

But he says the first quarter of 2023 could be a different ball game, based on history showing that large bullish buildups often take place in the first three months of the year. Morgan Stanley’s Mike Wilson also sees a “great buying opportunity” over this period, although a mostly sideways S&P 500 by the end of next year.

Markets are also approaching some major momentum signals that would be triggered even if markets stabilized around current levels, Liu said.

Liu notes that of the 10 CPI prints seen so far this year, nine have turned into extreme events, unlikely events that have taken investors and markets by surprise. This means that expectations for Tuesday’s core CPI to be between 0.3% and 0.4% could be a tall order.

Even so, he says the “balance of likely outcomes” for interest rates, positioning and macro “still continues to favor a bullish view on equities (and risk more broadly) here… time is on the bull side as we move forward into 2023.”

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ES00 Equity Futures

YM00

NQ00
are slightly lower, while bond yields BX:TMUBMUSD02Y

BX:TMUBMUSD10Y
and CL oil price

BRN00
are flat. The DXY Dollar
is stronger.

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The buzz

In addition to Wednesday’s Fed decision, the New York Fed’s inflation expectations are due later, with Tuesday’s CPI data a top priority, followed by Thursday’s retail sales and market updates. manufacturing throughout the week.

Welcome to Monday M&A. Amgen AMGN
acquires pharmaceutical company Horizon Therapeutics HZNP
in a $27.8 billion deal. Coupa Software shares COUP
are break into a report that private equity firm Thomas Bravo is in advanced talks about a takeover.

MSFTMicrosoft
will take a 4% stake in the London Stock Exchange
UK:LSEG,
which will spend billions on the tech giant’s cloud services and data.

Meanwhile, three months after striking a deal to make electric vans with Mercedes-Benz XE:MBG
Rivian RIVN
is in the process of bailing out, while Zeekr, a Chinese premium electric vehicle brand from Geely HK: 175
is supposedly is considering a $1 billion IPO in the United States.

China will stop using a travel tracking app as it continues to move away from COVID zero rules, such as the the country is setting up more intensive care units and trying to strengthen hospitals amid the spike in cases.

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Table

Threatened by the collapse of the FTX exchange, investors withdrew a record 91,363 bitcoins from BTCUSD,
worth around $1.5 billion, as of November, from crypto exchanges such as Binance, Kraken, and Coinbase, according to CryptoCompare data compiled by the FT.

Stock tickers

Here are the most searched tickers on MarketWatch as of 6 a.m.:

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MONKEY	AMC Entertainment Holdings Preferred Stock
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MMAT	Meta-materials
AMZN	Amazon.co.uk

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