You’re heard about the “everything bubble,” in which short-term traders simultaneously scramble to buy stocks, commodities and cryptocurrencies in a risk-on frenzy. However, in the final weeks of 2023, the prevailing phenomenon isn’t so much an “everything bubble” as a climb to the bottom — i.e., a “dash for trash” in the financial markets.
It’s the polar opposite of a flight to quality, with investors piling into speculative names that wouldn’t get a second glance in a more sensible environment. Still, maybe there are a few worthy picks among the rubble for traders with a strong stomach and a hard stop-loss policy.
Talking trash: How did we get here?
If you’re operating under the assumption that the market learned its lessons from the collapse of initial coin offerings (ICOs), non-fungible tokens (NFTs) and special purpose acquisition companies (SPACs), think again. If retail investors are good at anything, it’s forgetting the recent past and hoping that this time will be different — despite the evidence to the contrary.
This indifference to reality is only possible during an era of ultra-efficient and forward-looking markets. Federal Reserve Chairman Jerome Powell hasn’t stated that he’s finished hiking interest rates and is ready to start cutting them. Nevertheless, stock traders are pricing in the assumption that the Fed will cut interest rates not just once but multiple times in the first half of 2024.
In addition, stock investors have concluded that the Fed will manage to pull off a “soft landing,” averting a recession and keeping the economy and financial markets on an even keel through 2024. That’s a tough needle for the Fed to thread, and multiple economists have recently questioned whether the American economy is truly out of the woods.
Representative of these economists is Josh Schachter, senior portfolio manager at Easterly Investment Partners. Schachter warns that the “equity market is misguided” and that the “markets are behaving in almost a bipolar fashion.” In other words, the stock and cryptocurrency markets continue to pursue the “soft landing” narrative while the more sophisticated bond and currency markets appear to be pricing in a recession.
Even if you’re not in a risk-on mood at the moment, this likely won’t stop eager traders from piling in and chasing rallies.
Referring to the fear of missing out, Steve Sosnick, chief strategist at Interactive Brokers (NASDAQ:IBKR), exclaimed, “FOMO is back, baby! Traders have decided that even though it is still earning nearly 5%, cash is trash compared with quick profits in a variety of risk assets.”
Traders may have decided that cash is trash, but they’re still looking for trash they can turn into treasures. Cryptocurrencies across the board are shooting higher, small caps are rising from the grave, and for better or for worse, meme stocks are hot again. All of a sudden, the high-flying “Magnificent Seven” stocks look like super sensible bets compared to December’s rescued refuse.
December dumpster diving: What “trash” is worth buying now?
While a frenzied dash for trash might tempt clear-minded investors to hibernate through the winter, there’s no need to generalize that all of December’s speculative stocks are worthless. Believe it or not, there may actually be a handful of decent picks for small-scale portfolio positions.
For example, if you’re willing to look past the meme label, take a look at AMC Entertainment (NYSE:AMC). The company actually has a couple of profitable quarters on the books this year, and it could enjoy a revenue renaissance (pun fully intended) on the heels of Beyoncé’s new concert film.
Along with that, audacious investors might try to beef up their portfolios with a few shares of Beyond Meat (NASDAQ:BYND). The company’s third-quarter financial report wasn’t stellar by any means. However, Beyond Meat’s international net revenue rose 58.7% year over year, and BYND stock appears to have caught a bid lately.
Another pick that’s in the fast lane nowadays is Carvana (NYSE:CVNA) stock. The company isn’t necessarily a model of financial fitness, but it actually garnered an upgrade from JPMorgan (NYSE:JPM) analyst Rajat Gupta.
Observing Carvana’s progress in the areas of “productivity, costs, and culture,” he boldly raised his rating on Carvana shares from Underweight to Neutral while raising his price target on the stock from $25 to $40.
The idea isn’t to load the boat on these trashy stocks but only to consider them for minuscule, hero-or-zero portfolio positions. As a general guideline, it’s usually wise too keep investments like these very small, and if you’re not inclined to pick up litter in December, you don’t have to buy anything at all.
