Has a new bull market started already?

It's too soon to know for sure, but there are signs that the market may have already bottomed. Inflation is cooling off rapidly, and the Federal Reserve looks set to dial down its interest rate hike to just 25 basis points at its meeting next week. Microsoft's recent earnings report also indicated that fourth-quarter financial results were likely to be ugly, but Q4 is already in the past. The market is forward-looking, and investors are likely to jump on any sign that corporate earnings have hit bottom.

One thing is clear: The stock market will eventually bounce back. Here are three stocks to capitalize on the recovery.

1. Redfin

Like the rest of the real estate sector, Redfin (RDFN -2.26%) stock got hammered last year, falling nearly 90%. Growth ground to a halt. The business posted wide losses, issued two rounds of layoffs, and abandoned its home-flipping Redfin Now business.

The real estate market could remain sluggish through 2023, but Redfin stock has fallen so far that it won't need much to mount a turnaround. In fact, shares are up 43% year to date as the broad market has started to rebound.

Mortgage rates have also come down, with the 30-year rate falling by nearly a percentage point from its peak at 7% in October, which could lead to a recovery in housing demand.  

As an online real estate brokerage, Redfin is a cyclical business, and its performance is closely tied to the housing market. Yet based on recent share price movements, the stock seems likely to respond when the real estate market shows signs of improvement.

Redfin also just issued a report showing signs for optimism -- metrics such as home visits have improved since November even though they are still down from a year ago.

With a market capitalization of just $600 million and disruptive potential in a massive industry, Redfin stock could still plausibly soar in a recovery.

2. Okta 

Cloud identity software company Okta (OKTA -1.75%) was also a big loser during 2022 with shares down 70%. 

That wasn't entirely due to macroeconomic headwinds. The company acknowledged challenges integrating Auth0, the customer identity software business it acquired in 2021. It stepped back from its long-term guidance calling for $4 billion in revenue and $800 million in free cash flow in fiscal 2026, and it lost several executives.

As a result, Okta expects significantly slower growth in the coming year, calling for top-line growth to slow to a range between 16% and 17%, reflecting the macroeconomic uncertainty.

However, there are several reasons the stock looks primed for a comeback. First, Okta is rolling out its new privileged access management product later this year, which together with identity governance and administration will expand its addressable market to $80 billion. Second, the company competes in a product category that is less sensitive to macro-level factors than others as identity is adjacent to cybersecurity. Okta is also the independent leader in identity, and it will continue to grow along with the rise in demand for identity software.

Okta has a history of giving conservative guidance, and that could be the case for the coming year, especially if the economy starts to rebound.

3. Wayfair

Few stocks experienced the kind of boom and bust that Wayfair (W -2.20%) did during the pandemic. Thanks to its position at the intersection of e-commerce and home goods, sales boomed through 2020 and early 2021, but since then, the company has experienced declining revenue for six consecutive quarters.

However, management is taking steps to bring the business to profitability and prepare for the economic recovery. Last week, Wayfair said it was laying off 1,750 employees, or 10% of its total workforce, as part of a plan to cut $1.4 billion in annual costs.

The company also saw improvement in year-over-year revenue trends from November to December, and it said it expected to reach its target of breakeven adjusted EBITDA earlier in 2023 than it had originally expected.

Across the board, e-commerce stocks struggled in 2022 as the sector faced difficult comparisons with the pandemic surge. Growth should return in online retail, especially in categories like home goods where most of the market share belongs to brick-and-mortar retailers.

With the stock still down after falling 83% last year, Wayfair could mount a big recovery when the economy improves.