How to play the coming January bounce-back for 2023's stock-market losers

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Tax-loss selling and end-of-year window dressing artificially depress certain stocks, which then typically rebound in Janaury

Don’t be too quick to sell the stocks that have performed the worst so far this year, since they are likely to be among the U.S. market’s best performers in January.

One source of selling pressures is end-of-year window dressing, in which portfolio managers sell their losers in order to avoid the embarrassment of having to list them in their end-of-year reports. The other is tax-loss selling, in which investors sell some of the stocks they’re holding at a loss in order to offset some of the capital gains taxes they will have to pay in 2024.

To exploit this pattern, start by looking through a list of the biggest year-to-date losers. Pick out a handful that attract you, and place buy orders on them at prices well-below where they’re currently trading. If you’re lucky, year-end window dressing and tax-loss selling will depress prices enough that a few of your orders are filled. Come January you stand a good chance of pocketing some outsized gains.

 

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