Worst to first. It can happen fast when it comes to U.S. stocks.

One of the hottest groups in the recent market rally is consumer cyclicals. Long a distant underperformer in 2022, the sector has come to life in recent weeks thanks to some improved economic data, signs that inflation may have peaked and a more dovish Fed.

Economically sensitive companies are finding favor again because investors are seeking out oversold names in hopes of a lengthy rebound. From home improvement stores and apparel retailers to hotels and restaurants, some big gains are emerging from the S&P 500’s October 13th bottom.

With many consumer discretionary stocks arguably way oversold, the gains may just be getting started. More positive economic releases and a less aggressive Fed rate hike campaign could turn the sector from a laggard to a leader in 2023. 

These three stocks already have the wind at their back heading into the new year.

Will Peloton Stock Be a 2023 Winner? 

Peloton Interactive, Inc. (NASDAQ: PTON) has doubled off its 2022 low and seems to be finding favor as a turnaround story. The indoor cycling company rode a seven-day win streak into December despite a rather lackluster third-quarter earnings report. A wider-than-expected net loss reflected supply chain disruptions, higher material, and freight costs, and a shift from at-home exercise to gym memberships.

Regardless, sentiment around Pelton has turned bullish with the market sensing the worst may be over for the former pandemic winner. A healthier economy next year could mean increased consumer confidence and spending on connected fitness equipment and subscriptions. Combined with an improvement in logistics constraints and cost inflation, Peloton’s bottom line would theoretically be in better shape.

Whether demand for interactive fitness strengthens in a healthier economy remains to be seen. Absent the pandemic boost, Peloton does still have two powerful tailwinds: 1) global interest in health and wellness and 2) work-from-home trends. Both are supportive of purchasing digital fitness experiences. 

Still, the biggest key to a 2023 Peloton comeback may lie in the effectiveness of recently formed partnerships with UnitedHealthCare, Dick’s Sporting Goods, Hilton, and Amazon which could significantly expand Peloton’s audience. 

Has Alibaba Stock Finally Found a Bottom?

Alibaba Group Holding Limited (NYSE: BABA) has bounced approximately 50% off this year’s low and is starting to see higher trading volume. It's a combination that could point to a big 2023 for a stock that is widely considered a measuring stick of the Chinese consumer.

Of course, Alibaba’s disappointing plunge from $300 has much to do with China’s strict Covid policies. Heading into its third calendar year, zero tolerance seems to have reached a tipping point with protests spreading throughout the country. The market is hoping the angst leads to an end to lockdown restrictions that will allow China’s workers to make and spend more money.

However, a potential recovery at Alibaba is about more than just the Chinese government. Recent financial results have been better. Fiscal second-quarter sales and profits were up year-over-year thanks to momentum in the domestic and international commerce businesses as well as growing demand for cloud computing services. 

The consensus forecast for fiscal 2024 revenue implies 11% and 6% growth in revenue and earnings respectively. Not the lofty figures we grew accustomed to prior to the pandemic, but recovery must start somewhere. And when you command around 80% of a China e-commerce market that’s backed by 1.4 billion consumers, it's a recovery that will eventually be one of the massive proportions.

Does Wynn Stock Have More Upside?

Wynn Resorts, Limited (NASDAQ: WYNN) entered December on a three-month winning streak that was accompanied by good trading volume. The resort and casino operator got a Halloween day boost from news that Golden Nugget Casino owner Tilman Fertitta took a 6.1% stake in Wynn, and it hasn’t looked back since.

Wynn’s ensuing 31% November 2022 surge was largely driven by a strong third quarter report that showed resilient consumer demand for experiences and entertainment despite the broader macroeconomic pressures. The company’s new Encore Boston Harbor property hauled in 10% higher revenue and Las Vegas revenue jumped 14%. The return of conventions stands to bring even more people to the properties next year.

An improving global economy coupled with easing inflation could translate to a sustained recovery for Wynn and its peers in 2023. Loosened Covid restrictions in Macau and an end to the Russia-Ukraine conflict would certainly be a boon to international business. 

Back at home, Wynn’s most undervalued trump card may be its expanding online sports betting platform. The WynnBET app continues to gain traction in the market and favorable state legislative momentum could lead to a much wider customer base over the next few years. Building momentum in land-based casinos and digital assets has this stock looks like a win-win for 2023.