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Look for stocks to lose 30% from here, says strategist David Rosenberg. And don’t even think about turning bullish until 2024.
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David Rosenberg, the former chief North American economist at Merrill Lynch, has been saying for almost a year that the Fed means business and investors should take the U.S. central bank’s effort to fight inflation both seriously and literally.
Rosenberg, now president of Toronto-based Rosenberg Research & Associates Inc., expects investors will face more pain in financial markets in the months to come.
“The recession’s just starting,” Rosenberg said in an interview with MarketWatch. “The market bottoms typically in the sixth or seventh inning of the recession, deep into the Fed easing cycle.” Investors can expect to endure more uncertainty leading up to the time — and it will come — when the Fed first pauses its current run of interest rate hikes and then begins to cut.
Fortunately for investors, the Fed’s pause and perhaps even cuts will come in 2023, Rosenberg predicts. Unfortunately, he added, the S&P 500
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could drop 30% from its current level before that happens. Said Rosenberg: “You’re left with the S&P 500 bottoming out somewhere close to 2,900.”At that point, Rosenberg added, stocks will look attractive again. But that’s a story for 2024.
In this recent interview, which has been edited for length and clarity, Rosenberg offered a playbook for investors to follow this year and to prepare for a more bullish 2024. Meanwhile, he said, as they wait for the much-anticipated Fed pivot, investors should make their own pivot to defensive sectors of the financial markets — including bonds, gold and dividend-paying stocks.
MarketWatch: So many people out there are expecting a recession. But stocks have performed well to start the year. Are investors and Wall Street out of touch?
Rosenberg: Investor sentiment is out of line; the household sector is still enormously overweight equities. There is a disconnect between how investors feel about the outlook and how they’re actually positioned. They feel bearish but they’re still positioned bullishly, and that is a classic case of cognitive dissonance. We also have a situation where there is a lot of talk about recession and about how this is the most widely expected recession of all time, and yet the analyst community is still expecting corporate earnings growth to be positive in 2023.
In a plain-vanilla recession, earnings go down 20%. We’ve never had a recession where earnings were up at all. The consensus is that we are going to see corporate earnings expand in 2023. So there’s another glaring anomaly. We are being told this is a widely expected recession, and yet it’s not reflected in earnings estimates – at least not yet.
There’s nothing right now in my collection of metrics telling me that we’re anywhere close to a bottom. 2022 was the year where the Fed tightened policy aggressively and that showed up in the marketplace in a compression in the price-earnings multiple from roughly 22 to around 17. The story in 2022 was about what the rate hikes did to the market multiple; 2023 will be about what those rate hikes do to corporate earnings.
“ You’re left with the S&P 500 bottoming out somewhere close to 2,900. ”
When you’re attempting to be reasonable and come up with a sensible multiple for this market, given where the risk-free interest rate is now, and we can generously assume a roughly 15 price-earnings multiple. Then you slap that on a recession earning environment, and you’re left with the S&P 500 bottoming out somewhere close to 2900.
The closer we get to that, the more I will be recommending allocations to the stock market. If I was saying 3200 before, there is a reasonable outcome that can lead you to something below 3000. At 3200 to tell you the truth I would plan on getting a little more positive.
This is just pure mathematics. All the stock market is at any point is earnings multiplied by the multiple you want to apply to that earnings stream. That multiple is sensitive to interest rates. All we’ve seen is Act I — multiple compression. We haven’t yet seen the market multiple dip below the long-run mean, which is closer to 16. You’ve never had a bear market bottom with the multiple above the long-run average. That just doesn’t happen.
David Rosenberg: ‘You want to be in defensive areas with strong balance sheets, earnings visibility, solid dividend yields and dividend payout ratios.’
Rosenberg Research
MarketWatch: The market wants a “Powell put” to rescue stocks, but may have to settle for a “Powell pause.” When the Fed finally pauses its rate hikes, is that a signal to turn bullish?
Rosenberg: The stock market bottoms 70% of the way into a recession and 70% of the way into the easing cycle. What’s more important is that the Fed will pause, and then will pivot. That is going to be a 2023 story.
The Fed will shift its views as circumstances change. The S&P 500 low will be south of 3000 and then it’s a matter of time. The Fed will pause, the markets will have a knee-jerk positive reaction you can trade. Then the Fed will start to cut interest rates, and that usually takes place six months after the pause. Then there will be a lot of giddiness in the market for a short time. When the market bottoms, it’s the mirror image of when it peaks. The market peaks when it starts to see the recession coming. The next bull market will start once investors begin to see the recovery.
But the recession’s just starting. The market bottoms typically in the sixth or seventh inning of the recession, deep into the Fed easing cycle when the central bank has cut interest rates enough to push the yield curve back to a positive slope. That is many months away. We have to wait for the pause, the pivot, and for rate cuts to steepen the yield curve. That will be a late 2023, early 2024 story.
MarketWatch: How concerned are you about corporate and household debt? Are there echoes of the 2008-09 Great Recession?
Rosenberg: There’s not going to be a replay of 2008-09. It doesn’t mean there won’t be a major financial spasm. That always happens after a Fed tightening cycle. The excesses are exposed, and expunged. I look at it more as it could be a replay of what happened with nonbank financials in the 1980s, early 1990s, that engulfed the savings and loan industry. I am concerned about the banks in the sense that they have a tremendous amount of commercial real estate exposure on their balance sheets. I do think the banks will be compelled to bolster their loan-loss reserves, and that will come out of their earnings performance. That’s not the same as incurring capitalization problems, so I don’t see any major banks defaulting or being at risk of default.
But I’m concerned about other pockets of the financial sector. The banks are actually less important to the overall credit market than they’ve been in the past. This is not a repeat of 2008-09 but we do have to focus on where the extreme leverage is centered.
It’s not necessarily in the banks this time; it is in other sources such as private equity, private debt, and they have yet to fully mark-to-market their assets. That’s an area of concern. The parts of the market that cater directly to the consumer, like credit cards, we’re already starting to see signs of stress in terms of the rise in 30-day late-payment rates. Early stage arrears are surfacing in credit cards, auto loans and even some elements of the mortgage market. The big risk to me is not so much the banks, but the nonbank financials that cater to credit cards, auto loans, and private equity and private debt.
MarketWatch: Why should individuals care about trouble in private equity and private debt? That’s for the wealthy and the big institutions.
Rosenberg: Unless private investment firms gate their assets, you’re going to end up getting a flood of redemptions and asset sales, and that affects all markets. Markets are intertwined. Redemptions and forced asset sales will affect market valuations in general. We’re seeing deflation in the equity market and now in a much more important market for individuals, which is residential real estate. One of the reasons why so many people have delayed their return to the labor market is they looked at their wealth, principally equities and real estate, and thought they could retire early based on this massive wealth creation that took place through 2020 and 2021.
Now people are having to recalculate their ability to retire early and fund a comfortable retirement lifestyle. They will be forced back into the labor market. And the problem with a recession of course is that there are going to be fewer job openings, which means the unemployment rate is going to rise. The Fed is already telling us we’re going to 4.6%, which itself is a recession call; we’re going to blow through that number. All this plays out in the labor market not necessarily through job loss, but it’s going to force people to go back and look for a job. The unemployment rate goes up — that has a lag impact on nominal wages and that is going to be another factor that will curtail consumer spending, which is 70% of the economy.
“ My strongest conviction is the 30-year Treasury bond. ”
At some point, we’re going to have to have some sort of positive shock that will arrest the decline. The cycle is the cycle and what dominates the cycle are interest rates. At some point we get the recessionary pressures, inflation melts, the Fed will have successfully reset asset values to more normal levels, and we will be in a different monetary policy cycle by the second half of 2024 that will breathe life into the economy and we’ll be off to a recovery phase, which the market will start to discount later in 2023. Nothing here is permanent. It’s about interest rates, liquidity and the yield curve that has played out before.
MarketWatch: Where do you advise investors to put their money now, and why?
Rosenberg: My strongest conviction is the 30-year Treasury bond
TMUBMUSD30Y,
3.674% .
The Fed will cut rates and you’ll get the biggest decline in yields at the short end. But in terms of bond prices and the total return potential, it’s at the long end of the curve. Bond yields always go down in a recession. Inflation is going to fall more quickly than is generally anticipated. Recession and disinflation are powerful forces for the long end of the Treasury curve.As the Fed pauses and then pivots — and this Volcker-like tightening is not permanent — other central banks around the world are going to play catch up, and that is going to undercut the U.S. dollar
DXY,
+0.70% .
There are few better hedges against a U.S. dollar reversal than gold. On top of that, cryptocurrency has been exposed as being far too volatile to be part of any asset mix. It’s fun to trade, but crypto is not an investment. The crypto craze — fund flows directed to bitcoin
BTCUSD,
+0.35%
and the like — drained the gold price by more than $200 an ounce.“ Buy companies that provide the goods and services that people need – not what they want. ”
I’m bullish on gold
GC00,
+0.22%
– physical gold — bullish on bonds, and within the stock market, under the proviso that we have a recession, you want to ensure you are invested in sectors with the lowest possible correlation to GDP growth.Invest in 2023 the same way you’re going to be living life — in a period of frugality. Buy companies that provide the goods and services that people need – not what they want. Consumer staples, not consumer cyclicals. Utilities. Health care. I look at Apple as a cyclical consumer products company, but Microsoft is a defensive growth technology company.
You want to be buying essentials, staples, things you need. When I look at Microsoft
MSFT,
-0.61% ,
Alphabet
GOOGL,
-1.79% ,
Amazon
AMZN,
-1.17% ,
they are what I would consider to be defensive growth stocks and at some point this year, they will deserve to be garnering a very strong look for the next cycle.You also want to invest in areas with a secular growth tailwind. For example, military budgets are rising in every part of the world and that plays right into defense/aerospace stocks. Food security, whether it’s food producers, anything related to agriculture, is an area you ought to be invested in.
You want to be in defensive areas with strong balance sheets, earnings visibility, solid dividend yields and dividend payout ratios. If you follow that you’ll do just fine. I just think you’ll do far better if you have a healthy allocation to long-term bonds and gold. Gold finished 2022 unchanged, in a year when flat was the new up.
In terms of the relative weighting, that’s a personal choice but I would say to focus on defensive sectors with zero or low correlation to GDP, a laddered bond portfolio if you want to play it safe, or just the long bond, and physical gold. Also, the Dogs of the Dow fits the screening for strong balance sheets, strong dividend payout ratios and a nice starting yield. The Dogs outperformed in 2022, and 2023 will be much the same. That’s the strategy for 2023.
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Shell profits double to record $40 billion | CNN Business
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Hong Kong/London
CNN
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Shell made a record profit of almost $40 billion in 2022, more than double what it raked in the previous year after oil and gas prices soared following Russia’s invasion of Ukraine.
Europe’s largest oil company by revenue reported adjusted full-year earnings of $39.9 billion on Thursday — more than double the $19.3 billion it posted in 2021 — driven by a strong performance in its gas trading business. The company’s stock was up 1.7% in London.
The company reported $9.8 billion in profit in the fourth quarter. Just over 40% of Shell’s full-year earnings came from its integrated gas business, which includes liquified natural gas trading operations.
Shell CEO Wael Sawan said the results “demonstrate the strength of Shell’s differentiated portfolio, as well as our capacity to deliver vital energy to our customers in a volatile world.”
The earnings are the latest in a series of record-setting results by the world’s biggest energy companies, which have enjoyed bumper profits off the back of soaring oil and gas prices.
ExxonMobil this week posted record full-year earnings of $59.1 billion. Last month, Chevron
(CVX) reported a record full-year profit of $36.5 billion.That has led to renewed calls for higher taxation. Governments in the European Union and the United Kingdom have already imposed windfall taxes on oil company profits, with the proceeds used to help households struggling with rising energy bills.
Shell said it expected to pay an additional $2.3 billion in tax related to the EU windfall tax and the UK energy profits levy. The company paid $13 billion in tax globally in 2022.
Shell
(RDSA) also announced another $4 billion share buyback program and confirmed it would lift its dividend per share by 15% for the fourth quarter.— This is a developing story and will be updated.
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Biden administration takes another step toward advancing a controversial oil drilling project in Alaska | CNN Politics
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The Interior Department’s Bureau of Land Management on Wednesday advanced the controversial Willow oil drilling project on Alaska’s North Slope, releasing the final environmental impact statement before the project can be approved.
The ConocoPhillips proposed Willow drilling plan is a massive and decadeslong project that the state’s bipartisan Congressional delegation says will create much-needed jobs for Alaskans and boost domestic energy production in the US.
But environmental groups fear the impact of the planet-warming carbon pollution from the hundreds of millions of barrels of oil it would produce – and say it will deal a significant blow to President Joe Biden’s ambitious climate agenda.
The final environmental report from the Bureau of Land Management recommends a slightly smaller version of what ConocoPhillips originally proposed, putting the number of drilling sites at three instead of five. The Department of Interior is also recommending other measures to try to lower the pollution of the project, and recommending a smaller footprint of gravel roads and pipelines.
In a statement, the Interior Department said it “has substantial concerns about the Willow project and the preferred alternative as presented in the final SEIS, including direct and indirect greenhouse gas emissions and impacts to wildlife and Alaska Native subsistence.”
The Biden administration now has 30 days to issue a final decision on the project, after which drilling could begin. In its statement, Interior said it could select a different alternative on the project, including taking no action or further reducing the number of drill sites.
ConocoPhillips and members of the Alaska Congressional delegation have been pushing the administration to finalize the project by the end of February to take advantage of cold and icy conditions needed to drill in the Arctic. If the company misses that window, it could push the project’s start date to next year.
Erec Isaacson, president of ConocoPhillips Alaska, said in a statement that nearly five years of regulatory review should conclude “without delay.” Isaacson added the project is “ready to begin construction immediately” after Interior’s final decision is issued.
According to the Interior Department’s own estimation, the project would produce 629 million barrels of oil over the course of 30 years and would release around 278 million metric tons of planet-warming carbon emissions. Climate groups say that’s equivalent to what 76 coal-fired power plants produce every year.
“The world and the country can’t afford to develop that oil,” said Jeremy Lieb, a senior attorney for environmental law firm Earthjustice. Lieb and other advocates are concerned that Willow may be the start of a future drilling boom in the area.
“Willow is just the start based on what industry has planned,” Lieb said. “The total estimate for the amount of oil that could be accessible in the region around Willow is 7 or 8 billion barrels.”
For the Willow project, ConocoPhillips is proposing five drilling sites on federal land in Alaska’s North Slope, and the project would include a processing facility, pipelines to transport oil, gravel roads, at least one airstrip and a gravel mine site.
The project – and the public comment process leading up to it – has also received heavy criticism from the nearby Alaska Native village of Nuiqsut, which some villagers evacuated last year during a gas leak in a ConocoPhillips project in the area. Nuiqsut officials recently released a letter calling the Bureau of Land Management’s public input process “disappointing and inadequate,” criticizing both the Trump and Biden administration’s timeline.
The bureau’s “engagement with us is consistently focused on how to allow projects to go forward; how to permit the continuous expansion and concentration of oil and gas activity on our traditional lands,” Nuiqsut officials wrote in their letter.
Alaska’s entire Congressional delegation – including newly elected Rep. Mary Peltola, a Democrat – have urged the White House and Interior to approve the project, saying it would be a huge boost to state’s economy.
Sen. Lisa Murkowski, in particular, has been urging the White House and Biden personally to greenlight Willow, she told CNN.
“I’ve been pretty persistent on this,” she told CNN in an interview this summer. “Let’s just say, any conversation I’ve ever had with the White House, anyone close to the White House, I’ve brought up the subject of Willow.”
As gas prices spiked last summer, Murkowski, Sen. Joe Manchin of West Virginia, a Democrat, and other Senate Republicans tightened the pressure on Biden to approve a major domestic oil drilling project. Environmental advocates, meanwhile, argued the project will not bring US gas prices down any time soon, as the infrastructure will take years to build.
“When you think about those things that should be teed up and ready to go, this is one where in my view there’s really no excuse for why we should see further delay,” Murkowski said. “This is something that’s been in the works that’s gone through so much process, across multiple administrations.”
This story has been updated with more information.
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Iron ore prices could rally as one leading producer remains reluctant to share, analyst says
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A coke plant worker beside coke battery ovens at the ArcelorMittal steel plant in Kryvyi Rih, Ukraine, in March 2019.
Vincent Mundy | Bloomberg | Getty Images
Expect exports of iron ore out of India to remain low as the world’s fourth-largest producer reserves more of the commodity for its own use, said commodity intelligence service Kpler.
“Indian iron ore exports … have really come off in the last few months. And that is quite indicative that domestic consumption there is very strong,” said Reid I’Anson, Kpler’s senior commodity analyst, who added that this will continue throughout the year.
India’s exports of iron ore plunged by 90% year on year in October last year, and recorded an year-on-year decline as steep as 96% in September.
India produces 9.2% of the world’s iron ore. Australia is the largest producer, accounting for almost 35% of global supply, followed by Brazil and China.
“India is going to be a standout economy in terms of growth in 2023 … And I think exports out of India are going to remain pretty weak as well as they consume most of that domestic production.”
A 20% rally?
The dip in India’s exports of the commodity comes just as China’s Covid reopening sends commodity prices soaring, and I’Anson forecasts that an “upward movement of 20%” on iron ore prices is on the table.
The benchmark 62%-grade iron ore last traded at $123.37 per ton, up about 30% since December when China announced the rollback of its “zero-Covid” measures.
Iron ore is primarily used to make steel, an important material in construction and engineering projects — and both Asian nations are on track to consume more.
“You’ve got the return of the consumers in China, which is going to drive durables consumption, and you’re going to see an improvement in the property market there,” I’Anson said.
The plate mill of the Jindal Steel and Power Ltd. plant in Raigarh, Chhattisgargh, India, on Feb. 11, 2015.
Udit Kulshrestha | Bloomberg | Getty Images
According to Refinitiv, around 60% of global iron ore exports are destined for China.
“Downstream demand in China started to show some signs of optimism based on government support particularly for the construction sector, which is the largest steel using sector in the country,” Tamara Thorne, senior analyst at Refinitiv Metals Research, told CNBC.
A similar pace of demand is expected for its neighbor.
“We expect the steel consumption in India will grow much faster than what we have seen in the first nine months of the financial year (in 2022),” said Seshagiri Rao, joint managing director of JSW Steel.
How long will it last?
The secretary general of the Federation of Indian Mineral Industries, B K Bhatia, said he believes the export of iron ores in 2023 will be much more than the exports during 2022. Iron ore exports from India were affected by a 50% tax on low-grade iron ore exports, which was reversed in late November.
But while India’s exports of iron ore have picked up from December because of that, the move may not be a sustainable one, according to Kpler’s I’Anson. He maintains that the exports are unlikely to return to the levels seen in 2020 and 2021.
“The extent to which loadings have picked up recently is likely not sustainable for very long,” he said.
India’s iron ore exports won’t be the biggest factor in price volatility, however.
A laborer working at a stainless steel utensil workshop in Chennai on April 30, 2022.
Arun Sankar | Afp | Getty Images
“The largest swing factor is the ability of Rio Tinto in Australia and Vale in Brazil to operate up to the limits of their supply chains,” said CLSA research analyst Robert Stein.
Both iron ore powerhouses expect production to be flat year-on-year on the low side, and a 5% increase in a bullish scenario.
“Working capital has stabilised but remains somewhat elevated with commodity price volatility, higher raw material prices and global supply chain pressures,” mining giant Rio Tinto recently stated in its fourth-quarter production results.
China is another big factor.
“Demand is still impacted by the Chinese property deleveraging program and whilst in any given week, positive sentiment may lead price higher, [but] to sustainably reach those levels we would need to see widespread property stimulus or support,” said Stein.
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Here’s why you should always wait for the earnings call | CNN Business
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A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.
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Investors are pretty bad at living in the moment. We’re currently in the thick of fourth quarter earnings reports, but traders don’t seem to care about how companies fared during the final months of 2022. They’re more focused on what’s going to happen in the future.
Case-in-point: Earnings calls, where top execs pontificate about their economic outlook, have been moving markets more than earnings-per-share and revenue reports.
What’s happening: The mantra on Wall Street has become, as Ritholtz Wealth Management CEO Josh Brown puts it, “ignore the numbers, wait for the call.”
Microsoft reported great fourth quarter earnings last Tuesday that beat Wall Street’s expectations, but the stock dropped 4% the next day. That’s because CEO Satya Nadella got on an earnings call with investors and warned of a slowdown in the company’s cloud business and software sales. His negative outlook came just as the company announced it was letting go of 10,000 employees, further spooking investors.
Other tech companies are following suit — while things are fine for the time being, they’re reporting that the future is foggy.
IBM stock sank 4.5% last Thursday even as the tech titan beat Wall Street’s Q4 expectations. The reason for the drop might be because Jim Kavanaugh, IBM’s finance chief, warned on the conference call that it would be wise to expect the company’s total 2023 revenue growth to be on the low end. IBM also announced layoffs – the company said it plans to cut around 3,900 jobs or 1.5% of its total workforce.
The economic environment is rapidly changing. CEOs on earnings calls are talking more about recession than inflation now, according to an analysis by Purpose Investments.
Wall Street is also beginning to fear an economic downturn more than painful rate hikes and as a result investors are putting more weight on CEO and CFO forecasts.
And they’re looking bleak. As of Friday, 19 companies in the S&P 500 had issued forward earnings-per-share guidance for the first quarter of 2023, according to FactSet data. Of these 19 companies, 17, or 89%, issued negative guidance. That’s well above the 5-year average of 59%.
“My best guess is that cautious tones on conference calls will be the norm, not the exception,” wrote Brown in a recent post. These slowdowns have been partially factored into stock prices, he said, “but not necessarily in full.”
The upside: Market reaction appears to go both ways. American Express missed on earnings last week but said that credit card spending was hitting new records and that the future looks bright. The stock shot up more than 10%.
Prices at the pump typically fall during the coldest months as wintry weather keeps Americans off the roads. But something unusual is happening this year, reports my colleague Matt Egan. Gas prices are rocketing higher.
The national average for regular gas jumped to $3.51 a gallon on Friday and remained there through the weekend, according to AAA. Although that’s a far cry from the record of $5.02 a gallon last June, gas prices have increased by 12 cents in the past week and 41 cents in the past month.
All told, the national average has climbed by more than 9% since the end of last year – the biggest increase to start a year since 2009, according to Bespoke Investment Group.
Why are gas prices jumping? It’s not because of demand, which remains weak, even for this time of the year. Instead, the problem is supply.
The extreme weather in much of the United States near the end of last year caused a series of outages at the refineries that produce the gasoline, jet fuel and diesel that keep the economy humming. US refineries are operating at just 86% of capacity, down from the mid-90% range at the start of December, according to Bespoke.
Beyond the refinery problems, oil prices have crept higher, helping to drive prices at the pump northward. US oil prices have jumped about 16% since December partially due to expectations of higher worldwide demand as China relaxes its Covid-19 policies and also because oil markets are no longer receiving massive injections of emergency barrels from the Strategic Petroleum Reserve.
What’s next: Expect more pain at the pump. Patrick De Haan, head of petroleum analysis at GasBuddy, worries the typical springtime jump in prices will be pulled forward.
“Instead of $4 a gallon happening in May, it could happen as early as March,” De Haan told CNN. “There is more upside risk than downside risk.”
A return of $4 gas would be painful to drivers and could dent consumer confidence. Moreover, pain at the pump would complicate the inflation picture as the Federal Reserve debates whether to slow its interest rate hiking campaign.
Goldman Sachs had a rough time in 2022, and the investment bank’s CEO, David Solomon, is being punished for it. Well, kind of.
The investment banking giant said in a Securities and Exchange Commission filing Friday that Solomon received $25 million in annual compensation last year. While that is still a very large amount of money, it’s down nearly 30% from the $35 million that Solomon raked in during 2021, reports my colleague Paul R. La Monica.
Solomon’s $2 million annual salary is unchanged. But the company said that his “annual variable compensation,” paid in a mix of performance-based restricted stock units and cash, was well below 2021 levels.
Goldman Sachs (GS) shares fell more than 10% in 2022. The company also reported a 16% drop in revenue in the fourth quarter and profit plunge of 66% earlier this month, mainly due to the lack of merger activity and initial public offerings.
Maybe Solomon can make that extra $10 million with payouts from his burgeoning DJ career.
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Chevron earnings soar to a record | CNN Business
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Chevron reported a record full-year profit of $36.5 billion, buoyed by high oil prices.
Adjusted earnings for the year more than doubled from the $15.6 billion Chevron earned in 2021 and up 36% from its previous record profit set in 2011.
The oil company’s fourth-quarter earnings came in at $7.9 billion, up 61% from a year earlier but less than the record quarterly income of $11.4 billion it reported for the second quarter.
The fourth quarter earnings per share of $4.09 fell short of the forecast of $4.38 a share from analysts surveyed by Refinitiv. But revenue in the quarter of $56.5 billion topped forecasts by nearly $2 billion and was up 17% from a year earlier.
Full-year revenue of $246.3 billion was up 52% from 2021.
Shares of Chevron
(CVX) were down slightly more than 1% in premarket trading.Ahead of Friday’s report Chevron, the nation’s second largest oil company, behind only ExxonMobil, had announced it was hiking its dividend by 6% along with a massive $75 billion share repurchase plan. The decision brought criticism from those who said oil companies should be investing their money in producing more oil and gasoline to increase supply and drive down prices for inflation-weary drivers.
“For a company that claimed not too long ago that it was ‘working hard’ to increase oil production, handing out $75 billion to executives and wealthy shareholders sure is an odd way to show it,” said Abdullah Hasan, assistant press secretary at the White House, in a tweet Wednesday evening after the share repurchase was announced.
Chevron said Friday its investments in operations increased by more than 75% from 2021, and annual US production increased to the equivalent of 1.2 million barrels of oil a day.
The amount it spent on capital spending and exploration in 2022 was $12.3 billion, up 43% compared with $8.6 billion spent in 2021, but only slightly more than the $11 billion it spent on dividends or the $11.3 billion on share repurchases during the year.
The record profit came primarily from the soaring oil prices during the year, not its increased production.
Chevron and other major oil companies all benefited from the spike in oil and gasoline prices during 2022, in the wake of Russia’s invasion of Ukraine. While Russia, one of the world’s leading oil exporters, sent relatively little oil to the United States, sanctions placed on Russia following the invasion roiled global commodity prices which set the price of oil.
Futures for a barrel of Brent crude oil, the global benchmark, hit a record of $123.58 close in early June, up more than 50% from six months earlier ahead of the war, and the average price of a gallon of regular gas in the United States broke the $5 mark a week later to reach a record $5.03.
But oil and gas prices have fallen substantially since then. Brent closed Thursday at $87.47, slightly below the year-earlier level, while the average price of a gallon of regular gas stands at $3.51 a gallon, only slightly higher from the $3.35 average of a year ago.
But prices have started to rise once again, partly because Covid lockdown rules in China have been lifted. Traders believe that’s a bullish sign for global demand for oil and gasoline. Refinery problems caused by winter weather are also pushing prices higher.
The average US price of a gallon of regular gasoline is up nearly 12 cents in just the last week and up 41 cents, or 13%, in the last month. Brent oil is up 12% in the last three weeks.
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Chevron stock falls after profit misses expectations, while revenue beats
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Shares of Chevron Corp.
CVX,
+4.86%
fell 0.7% in premarket trading Friday after the oil and gas giant missed fourth-quarter profit expectations, while revenue rose above forecasts. Net income rose to $6.35 billion, or $3.33 a share, from $5.06 billion, or $2.63 a share, in the year-ago period. Excluding nonrecurring items, adjusted earnings per share of $4.09 was below the FactSet consensus of $4.33. Sales grew 17.3% to $56.47 billion, beating the FactSet consensus of $52.68 billion. Net oil-equivalent production fell 3% to 3.01 million barrels per day, as U.S. production rose 4% but international production dropped 7% due primarily to the end of concessions in Thailand and Indonesia. For Chevron’s upstream business, which includes exploration and production, U.S. earnings declined 11.9% to $2.62 billion while international earnings jumped 31.2% to $2.87 billion. “We delivered record earnings and cash flow in 2022, while increasing investments and growing U.S. production to a company record,” said Chief Executive Mike Wirth. The stock has gained 5.6% over the past three months through Thursday, while the Energy Select Sector SPDR ETF
XLE,
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has tacked on 4.7% and the Dow Jones Industrial Average
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Silver prices could touch a 9-year high in 2023 — with a bigger upside than gold
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A one kilogram silver bar, a two hundred and fifty gram silver bar, and a five hundred gram silver bar, all produced by Swiss manufacturer Argor Heraeus SA in Budapest, Hungary, on July 20, 2016.
Akos Stiller | Bloomberg | Getty Images
Prices of silver could hit a nine-year high of $30 per ounce this year — possibly outpacing gold prices.
The last time spot silver touched $30 levels per ounce was in February 2013, according to closing price data from Refinitiv.
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Analysts told CNBC that insufficient supplies of silver as well as its tendency to be a better performer than gold in periods of high inflation are key drivers supporting the outlook.
“Silver has historically delivered gains of close to 20% per annum in years inflation is high. Given that track record, and how cheap silver remains relative to gold, it wouldn’t surprise to see silver head towards $30 per ounce this year, though that will likely offer significant resistance,” said Janie Simpson, CEO at ABC Bullion.
Spot silver prices notched a record high of $49.45 in 1980 against the backdrop of a 13.5% inflation rate, up from around $4 in 1976, when the rate of inflation was cooler at 5.7%.
The precious metal last traded $24.02 per ounce, against the backdrop of an inflation rate of 6.5%.
Silver shortage
“Silver is in a shortage… and there is a notable drawdown in the available physical stocks held in New York and London’s physical hubs, more so than seen in gold,” said Nicky Shiels, head of metals strategy at precious metals company MKS Pamp.
Shiels added that silver is expected to post deficits of more than 100 million ounces over the next five years, with industrial demand spurring the tight supply.
“The largest segment of silver demand is industrial, [which equates] to almost 50% of total demand,” he said, calling for a base case of silver prices to climb to $28, with a bullish case of $30 or more.
I’m very bullish on gold, but I’m even more bullish on silver.
Randy Smallwood
President of Wheaton Precious Metals
That demand is expected to grow more than 15% over the next five years, he said, hinging on accelerated industrial demand from automotive and electronics applications.
Silver is a material commonly used in the manufacturing of automobiles, solar panels, jewelry and electronics.
No silver lining for silver supplies
“We hit peak silver supply back about five, six years ago. Silver production on a worldwide basis has actually been dropping, and we’re not seeing as much silver produced from the mines,” said Randy Smallwood, president of Wheaton Precious Metals.
According to trade group The Silver Institute, the supply of silver from mine production in 2022 was 843.2 million ounces, which was still shy of the decade’s peak of 900 million ounces in 2016.
The supply of silver, which is largely produced as a byproduct of lead-zinc, copper and gold mines, does not generally respond as quickly to demand.
Freshly cast 30 kilogram silver ingots cooling in their molds at the JSC Krastsvetmet non-ferrous metals plant in Krasnoyarsk, Russia, on Monday, July 12, 2021.
Andrey Rudakov | Bloomberg | Getty Images
“When silver prices go up, it’s not like the silver mines can increase production, because the silver mines only supply about 25% of the silver,” Smallwood said, adding that the market often relies on the lead-zinc mines to satisfy the higher demand.
However, he maintained that while it wouldn’t be surprising to see silver touch $30 per ounce, he does not think that price will hold. He calls for prices to “stay comfortably over $20 per ounce.”
“I’m very bullish on gold, but I’m even more bullish on silver,” Smallwood said.
‘Headwind for silver’?
However, recession fears could lead to softer industrial demand, which may cause silver prices to drop as low as $18 per ounce, according to MKS Pamp.
The biggest risk to silver prices is if inflation falls away faster than expected, Pallion’s Simpson seconded.
“If the Fed continues to tighten, and if inflation falls away more rapidly than the market expects, that will be a headwind for silver,” she said, “especially if the economy heads into a recession, given the large share of silver demand tied to industrial output.”
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Egg prices exploded 60% higher last year. These food prices surged too | CNN Business
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Minneapolis
CNN
—
Eggs, milk, butter, flour … if you were making pancakes last year, it would have cost you. Food prices surged in 2022.
Grocery prices remain stubbornly high (and nearly double the rate of overall inflation) at 11.8% year over year, according to data released Thursday by the Bureau of Labor Statistics.
Blame Russia, the weather, disease and a host of other factors.
“Even though we’re seeing inflationary pressures ease, we still have a war in Ukraine,” said Tom Bailey, senior consumer foods analyst with Rabobank. “Fertilizer costs have improved, but they still remain very high. Energy costs have improved, but they still remain relatively high. Labor costs still remain a problem — and the list goes on.”
Weather and disease are heavily affecting certain products’ prices, too – and none have been more rotten than egg prices: They’re up 59.9% year over year, a rate not seen since 1973, when high feed costs, shortages and price freezes caused certain agricultural products to soar in price. Since early last year, a deadly avian flu has devastated poultry flocks, especially turkeys and egg-laying hens. That was compounded by increasing demand and higher input costs, such as feed.
As a result, people like Jim Quinn are shelling out upwards of $6 and $7 for a dozen eggs.
Quinn has run daytime eatery The Hungry Monkey Café in Newport, Rhode Island, with his wife, Kate, since 2009. As a breakfast and lunch joint, it leans heavily on eggs for the majority of dishes on its menu — and especially for the 15-egg King Kong omelet novelty food challenge at the restaurant.
Even though eggs and seemingly every other ingredient have risen in price during the past year, Quinn and The Hungry Monkey have chosen to eat the cost.
“I’m trying to hold the line on the prices without having to increase them,” Quinn said. “It makes it extremely challenging for a mom-and-pop [business].”
He added: “We’re just trying to stay alive and hope that things will come down.”
But there’s good news on the horizon. The cost of food is still hard to swallow, but the latest Consumer Price Index shows that those price increases — by and large — are at least growing at slower rates.
In December, “food at home” prices increased 0.2% from the month before. That’s the smallest monthly increase since March 2021.
The expectations are for food price increases to continue to moderate, Bailey said.
“I suspect over the next 12 months we will see improvements in supply, improvements in the conditions that have been challenging across most of our food categories,” he said, “and we’ll finally start to see prices, at least upstream, really starting to come off. And then maybe it’s 2024 where we could eventually see some deflation for food.”
Here’s a look at how prices are trending across certain food categories in December, according to BLS data:
Eggs: +59.9% annually; +11.1% from November
Butter and margarine: +35.3% annually; +1.7% from November
Lettuce: +24.9% annually; +4% from November
Flour and prepared flour mixes: +23.4% annually; -1% from November
Canned fruits and vegetables: +18.4% annually; +0.3% from November
Bread: +15.9% annually; +0.2% from November
Cereals and cereal products: +15.6% annually; -0.3% from November
Coffee: +14.3% annually; +0% from November
Milk: +12.5% annually; -1% from November
Chicken: +10.9% annually; -0.6% from November
Baby food: +10.7% annually; -0.2% from November
Fresh fruits: +3.4% annually; -1.9% from November
Uncooked ground beef: +0.7% annually; -0.1% from November
Bacon and related products: -3.7% annually; -2.9% from November
Uncooked beef steaks: -5.4% annually; +0.9% from November
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Inflation is easing, but the prices of these groceries are expected to soar in 2023 — including one whose price rose nearly 60% in December
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General inflation is easing, but the prices of some food items are not going down anytime soon. And the reasons are largely out of the Federal Reserve’s control.
The consumer price index cooled in December, falling to an annualized 6.5% from the 7.1% annual rate recorded in November, according to government data. Still, the annualized inflation rate in food was 10.4% in December, significantly higher than the overall inflation rate even as it represented a slower rate of increase than November, when food prices were 12% higher than in November 2021.
Inflation running at nearly 40-year highs over the past year has put a squeeze on American wallets. Through a series of jumbo rate hikes, the Federal Reserve has sought to tamp down inflation. Its target interest rate was lifted from a negligible level to a range of 4.25% to 4.50% by the end of 2022.
But a few factors impacting food prices are not going away. War is still ongoing in Ukraine, which affected the prices of fertilizers and animal feeds; the avian flu continues to impact the egg supply; and extreme weather conditions are adding complexities to food production.
The following is a look at how a few popular food items are affected.
Eggs
The price of eggs surged 59.9% on the year in December, up from 49% in November, according to the most government data. That means a carton of Grade A large eggs on average more than doubled in cost with prices reaching $4.25 in December 2022, compared to $1.79 a year earlier. In some parts of the country, consumers could pay up to $8 for a carton of organic eggs.
Avian flu, which has forced millions of chickens to be culled and caused a shortage of eggs, is the main reason behind the price increase. In a change from previous breakouts that faded as summer ended, this time the avian flu lingered into winter.
The holiday season is usually the peak for consumer egg demand, which means that we could see egg prices tick down a little in the new year, experts said.
But it will not be a significant drop given the ongoing flu and high cost of feed. If input costs continue to increase and the bird flu continues to kill large quantities of hens, the costs will most likely be passed on to consumers, said Curt Covington, senior director of partner relations at AgAmerica Lending, a financial services company providing agriculture loans.
Experts, including the biggest egg producer in the country, Cal-Maine, said the avian flu will be hitting egg supplies for the long term. “More than 43 million of the 58 million birds slaughtered over the past year to control the virus have been egg-laying chickens, including some farms with more than a million birds apiece in major egg-producing states like Iowa,” the Associated Press reported this week.
Read more: Cal-Maine says avian flu could continue to hit egg supplies after this year
“I suspect it will take much additional effort to ‘stamp-out’ HPAI this time around and we may very well be dealing with the reality that this will be a year-round issue,” said Brian Earnest, lead economist for animal protein at CoBank, a national cooperative bank serving industries across rural America, in an email to MarketWatch.
The weekly supplies of eggs on hand has also reached a historic low, he told MarketWatch. For the week ended Dec. 19, cases on hand reported by the USDA totaled 1.176 million. That’s a 20% drop year-over-year, and the lowest level for the same week since 2014, he said.
Also see: Why egg prices are sizzling — up 38% on last year
Butter
Butter prices rose by 31.4% on the year in December, up from 27% in November, making the average price for a pound of butter $4.81 nationally. It was $3.47 a year earlier.
Extreme heat and smaller cow herds are the main reasons behind that, experts told MarketWatch. Cows eat less and produce less milk in the heat, and the cost of maintaining milk production skyrocketed last year, making farmers unwilling to expand their herds.
Going forward into 2023, the price of butter could soften, but year-over-year price increases could still stay high, said Tanner Ehmke, lead economist of dairy and specialty crops at CoBank.
Cows are approaching their prime milk-producing season, which usually runs from March through May, although customer demand usually peaks during the recently completed holiday season, he said.
But the increase of supply will not be much, Ehmke said, because costs are staying at record highs for farmers to maintain and expand their herds. Drought in the Western part of the country and the war in Ukraine continue to impact the supply and costs of feed.
“It’s [going to be] a very modest increase,” said Ehmke.
About 58% of the U.S. is at least “abnormally dry,” according to the National Integrated Drought Information System. It’s likely this year will see more drought-inducing La Niña weather conditions, according to National Weather Service’s Climate Prediction Center.
“If so, the third dry year in a row would signal the worst drought since at least 2011- 2013,” said Rob Fox, director of CoBank’s knowledge-exchange division in a 2023 preview released in December. “But this time it is more concentrated in the Western states, and it would be even more devastating to their already precarious water supplies and desiccated pastures,” he added.
At the same time, butter production is competing with the growing production of and appetite for cheese in the U.S., Ehmke told MarketWatch last September. U.S. cheese consumption per capita is growing around 1% to 2% each year, according to the USDA. U.S. cheese exports also increased, particularly to countries like South Korea and Japan.
Read more: Butter prices hit an all-time high — partly because extreme heat is taking a toll on dairy cows
Vegetable oil and margarine
Margarine, which is largely made of vegetable oil, is also seeing a huge price increase. The price of margarine, the substitute for butter in the old days, rose by 43.8 % in December, down slightly from 47.4% in November compared to a year before.
While soybeans, corn and sunflower oil are among the food items that have been hugely impacted by the war in Ukraine, another dynamic is at play here, analysts suggested: A large quantity of vegetable oil is being used for the production of renewable diesel.
In 2021/2022, 38.4% of soybean-oil supplies were used for biofuel production — biofuel is a broader category than renewable diesel — up from 35.6% the year before, according to USDA data updated in October 2022.
Transitioning to a green economy laid out in the Inflation Reduction Act will require more soybean supply. The expected growth in soybean oil-based renewable diesel will require considerably more soybean bushels for domestic production, wrote Kenneth Scott Zuckerberg, CoBank’s lead economist for grain and farm supply, in a report in September.
At the moment, global grain and oilseed supplies are tight, and the combined global stocks of corn, wheat and soybeans are forecast to decline for the fifth straight year in 2023, according to the CoBank report.
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‘Recession is what everyone is betting on’: 2023’s first trading day begins
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In the first trading day of the new year, U.S. financial markets were bogged down by the almost universal view that a recession is approaching.
A stocks rally fizzled out within the first 30 minutes of opening gains. Gold, a traditional safe haven, touched its highest level in six months, rising alongside silver and platinum. And 10- to 30-year Treasury yields, nestled in what’s known as the long end of the bond market, fell as investors jumped into government bonds — driving those yields down respectively to around 3.8% and 3.9%.
At the heart of the market moves was the strong sense that an economic downturn is all but inevitable at this point, following months of central bank interest rate hikes around the world — with the International Monetary Fund‘s chief Kristalina Georgieva warning that the economies of the U.S., European Union and China are all slowing simultaneously. Scion Asset Management founder Michael Burry said he expects another “inflation spike” after recession rocks the U.S., and former New York Fed President William Dudley said a U.S. economic downturn “is pretty likely.”
Read: Stock-market investors face 3 recession scenarios in 2023
“Recession is what everyone is betting on,” said Ben Emons, senior portfolio manager and head of fixed income/macro strategy at NewEdge Wealth in New York. “And, the thinking is, therefore inflation will decelerate faster than what people anticipate and the Federal Reserve could move quicker to a rate cut. But the whole narrative of a recession is something that’s bothering the stock market and other asset classes because it will mean shrinking margins and earnings.”
Indeed, a much-hoped for rally in stocks around this time of the year, known as the “Santa Claus rally,” is failing to materialize, with just one more trading session left on Wednesday before the end of that seasonal period. The in-house research arm of BlackRock Inc., the world’s largest asset manager, described recession as “foretold” on Tuesday and said it is “tactically underweight” developed-market stocks, which are still “not pricing the recession we see ahead.” That’s the case even though global stocks ended 2022 down by 18% and bonds fell 16%, said Jean Boivin, head of the BlackRock Investment Institute, and others.
Sources: BlackRock Investment Institute, Refinitiv, Bloomberg.
“We see stock rallies built on hopes for rapid rate cuts fizzling. Why? Central banks are unlikely to come to the rescue in recessions they themselves caused to bring inflation down to policy targets. Earnings expectations are also still not fully reflecting recession, in our view. But markets are now pricing in more of the damage we see – and as this continues, it would pave the way for us to turn more positive on risk assets,” Boivin and others at BlackRock Investment Institute wrote in a note Tuesday.
“Even with a recession coming, we think we are going to be living with inflation,” they said.
Interestingly, the financial market’s focus on a 2023 recession is being accompanied by the view that such a downturn will help cure inflation, allowing central banks to end, slow, or even reverse their monetary policy-tightening campaigns. That view was buttressed by Tuesday’s release of inflation data out of Germany, which showed that the annual rate from the consumer price index fell by more than expected in December to a four-month low. Back in the U.S., fed funds futures traders priced in a greater likelihood of a smaller-than-usual, 25-basis point rate hike by the Federal Reserve in February.
As of Tuesday afternoon, all three major U.S. stock indexes DJIA SPX were down, led by a 1.3% drop in the Nasdaq Composite.
Meanwhile, a rally in Treasurys moderated relative to earlier in the day. The 10-year Treasury yield
TMUBMUSD10Y,
3.785% ,
a benchmark for borrowing costs, dropped back to levels last seen around Dec. 23-26, a period when conditions were “totally illiquid and no one was trading,” said Emons of NewEdge Wealth.[ad_2]
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Gold surges to 6-month high, and analysts expect new records in 2023
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One kilo gold bars are pictured at the plant of gold and silver refiner and bar manufacturer Argor-Heraeus in Mendrisio, Switzerland, July 13, 2022.
Denis Balibouse | Reuters
LONDON — The price of gold notched a six-month high early on Tuesday, and analysts believe the rally has further to go in 2023.
Spot gold peaked just below $1,850 per troy ounce in the early hours, before easing off to trade around $1,834 per ounce by late-morning in Europe. U.S. gold futures were up 0.8% at $1,840.50.
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Gold prices have been on a general incline since the beginning of November as market turbulence, rising recession expectations, and more gold purchases from central banks underpinned demand.
“In general, we are looking for a price friendly 2023 supported by recession and stock market valuation risks — an eventual peak in central bank rates combined with the prospect of a weaker dollar and inflation not returning to the expected sub-3% level by year-end — all adding support,” said Ole Hansen, head of commodity strategy at Saxo Bank.
“In addition, the de-dollarization seen by several central banks last year when a record amount of gold was bought look set to continue, thereby providing a soft floor under the market.”
Looking ahead, Hansen suggested the key events for gold prices would be Wednesday’s minutes from the latest U.S. Federal Reserve meeting and Friday’s U.S. jobs report.
“Above $1842, the 50% [mark] of the 2022 correction, gold will be looking for resistance at $1850 and $1878 next,” Hansen added.
New all-time high in 2023?
Much of the 2023 outlook for global markets hinges on the trajectory of monetary policy as central banks ease off the aggressive interest rate hikes of the past year amid slowing economic growth and possible recessions.
Economists are divided as to whether this will culminate in rate cuts by the end of the year, however, as inflation is expected to remain well above the target range in most major economies.
A full dovish pivot by central banks this year would likely have major implications for gold prices, according to strategists.
Eric Strand, manager of the AuAg ESG Gold Mining ETF, said last month that 2023 would yield a new all-time high for gold and the start of a “new secular bull market,” with the price exceeding $2,100 per ounce.
“Central banks as a group have continued, since the great financial crisis, to add more and more gold to their reserves, with a new record set for [the third quarter of] 2022,” Strand said.
“It is our opinion that central banks will pivot on their rate hikes and become dovish during 2023, which will ignite an explosive move for gold for years to come. We therefore believe gold will end 2023 at least 20% higher, and we also see miners outperforming gold with a factor of two.”
The bullion bullishness was echoed toward the end of last year by Juerg Kiener, managing director and chief investment officer at Swiss Asia Capital, who told CNBC last month that the current market conditions mirror those of 2001 and 2008.
“In 2001, the market didn’t just move 20 or 30%, it moved a lot, the same in 2008 when we had actually a smaller sell-off in the market and the stimulus coming back in, and gold went from $600 to $1,800 in no time, so I think we have a very good chance that we see a major move,” Kiener told CNBC’s “Street Signs Asia” in late December.
“It is not going to be just 10 or 20%, I think I’m looking at a move which will really make new highs.”
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Asian markets mixed ahead of Fed report, US jobs data
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BEIJING — Asian stock markets were mixed Tuesday ahead of updates on U.S. employment amid fears of a possible global recession.
Shanghai and Hong Kong gained. Seoul and Sydney declined. Oil prices fell.
Coming off a year of big declines for major stock markets, traders worry the Federal Reserve and other central banks that raised interest rates last year to cool inflation might be willing to push the world into recession.
Inflation might “remain far north of 3% by the end of 2023, simply too high for central bank comfort,” said Stephen Innes of SPI Asset Management in a report.
The Shanghai Composite Index gained 0.2% to 3,094.12 and the Hang Seng in Hong Kong added 0.6% to 19,906.65. Japanese markets were closed for a holiday.
Seoul’s Kospi shed 0.8% to 2,208.36 after South Korea’s 2022 exports fell 9.5% from the previous year and the country recorded its biggest trade deficit ever.
Sydney’s S&P-ASX 200 lost 1.6% to 6,927.20 after Australian house prices fell 1.1% and an index of manufacturing activity decline.
India’s Sensex opened up 0.5% at 61.167.79. Singapore declined while Bangkok and Jakarta advanced. New Zealand markets were closed for a holiday.
This week’s most closely watched data point is notes from the Fed’s latest meeting due to be released Thursday. That will give traders an update on the U.S. central bank’s thinking about the possible need for more rate hikes.
It will be followed Friday by U.S. employment data.
Forecasters expect monthly job gains to decline in December, which they hope might encourage the Fed to dial back plans for more rate hikes. But the Fed has a “clear focus on keeping inflation under check,” which “could still leave pricing data as the key driver of market moves,” Yeap Jun Rong of IG said in a report.
Traders also are looking ahead to corporate earnings reports in mid-January.
Global central banks are trying to extinguish inflation that is at multi-decade highs in many countries. It has been worsened by Russia’s invasion of Ukraine, which disrupted commodity markets and caused oil and wheat prices to spike.
U.S. financial markets were closed Monday for a holiday after Wall Street’s benchmark S&P 500 index ended 2022 down 19.4%, its biggest decline since the 2008 financial crisis. It lost $8.2 trillion in stock value, according to S&P Dow Jones Indices.
Market benchmarks in Germany and France closed higher Monday.
The Fed’s key lending rate stands at a range of 4.25% to 4.5%, up from close to zero after seven increases last year. The U.S. central bank forecasts it will reach a range of 5% to 5.25% by late 2023, with no rate cut before 2024.
In energy markets, benchmark U.S. crude lost 36 cents to $79.90 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.86 on Monday to $80.26. Brent crude, the price basis for international oil trading, shed 39 cents to $85.52 per barrel in London. It added $2.45 the previous session to $85.91.
The dollar declined to 130.17 yen from Monday’s 130.80 yen. The euro edged down to $1.0669 from $1.0700.
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Asian markets mixed ahead of Fed report, US jobs data
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BEIJING — Asian stock markets were mixed Tuesday ahead of updates on U.S. employment amid fears of a possible global recession.
Shanghai and Hong Kong gained. Seoul and Sydney declined. Oil prices fell.
Coming off a year of big declines for major stock markets, traders worry the Federal Reserve and other central banks that have raised interest rates repeatedly to cool inflation might be willing to push the world into recession.
Inflation might “remain far north of 3% by the end of 2023, simply too high for central bank comfort,” said Stephen Innes of SPI Asset Management in a report.
The Shanghai Composite Index gained 0.2% to 3,094.12 and the Hang Seng in Hong Kong added 0.6% to 19,906.65. Japanese markets were closed for a holiday.
Seoul’s Kospi shed 0.8% to 2,208.36 after South Korea’s 2022 exports fell 9.5% from the previous year and the country recorded its biggest trade deficit ever.
Sydney’s S&P-ASX 200 lost 1.6% to 6,927.20 after Australian house prices fell 1.1% and an index of manufacturing activity decline. Singapore declined while Jakarta advanced. New Zealand markets were closed for a holiday.
This week’s most closely watched data points are notes from the Fed’s latest meeting due to be released Thursday. That will give traders an update on the U.S. central bank’s thinking about the possible need for more rate hikes.
It will be followed Friday by U.S. employment data.
Forecasters expect monthly job gains to decline in December, which they hope might encourage the Fed to dial back plans for more rate hikes. But the Fed has a “clear focus on keeping inflation under check,” which “could still leave pricing data as the key driver of market moves,” Yeap Jun Rong of IG said in a report.
Traders also are looking ahead to corporate earnings reports in mid-January.
Global central banks are trying to extinguish inflation that is at multi-decade highs in many countries. It has been worsened by Russia’s invasion of Ukraine, which disrupted commodity markets and caused oil and wheat prices to spike.
U.S. financial markets were closed Monday for a holiday after Wall Street’s benchmark S&P 500 index ended 2022 down 19.4%, its biggest decline since the 2008 financial crisis. It lost $8.2 trillion in stock value, according to S&P Dow Jones Indices.
Market benchmarks in Germany and France closed higher Monday.
The Fed’s key lending rate stands at a range of 4.25% to 4.5%, up from close to zero after seven increases last year. The U.S. central bank forecasts it will reach a range of 5% to 5.25% by late 2023, with no rate cut before 2024.
In energy markets, benchmark U.S. crude lost 20 cents to $80.06 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.86 on Monday to $80.26. Brent crude, the price basis for international oil trading, shed 26 cents to $85.65 per barrel in London. It added $2.45 the previous session to $85.91.
The dollar declined to 130.17 yen from Monday’s 130.80 yen. The euro edged down to $1.0667 from $1.0700.
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Gas prices had a wild ride this year, making 2023 tough to predict | CNN Business
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New York
CNN
—
US drivers have never seen a year quite like 2022.
Wild price swings at the gas pump throughout the year make predicting prices for 2023 even more difficult.
Russia’s invasion of Ukraine and the sanctions that it sparked on Russian oil sent the price of crude soaring in February at the beginning of the conflict. And even though relatively little Russian crude oil was ever exported to US refineries, the fact that oil prices are set on global commodity markets meant that US drivers were not spared a spike in gas prices.
Prices were far more volatile throughout 2022 than they were in other recent years, both during and before the pandemic roiled oil markets.
By June, the average US gas price crossed $5 a gallon for the first time ever, hitting a record $5.02 on June 14. But after that came a prolonged slide in gas prices, prompted by a number of factors, including the release of oil from the US Strategic Petroleum Reserve, concerns about the possibility of a recession in both the US and global economies, and a surge in Covid cases that caused renewed lockdowns in Asia. By the end of the year, the national average price of a gallon of regular gas had fallen to just over $3, well below the pre-invasion price, back to the average price of late summer of 2021.
But there was not the same level of relief for the price of diesel. Diesel prices fell 20% from their peak in June, only about half the decline for gasoline during the same period. And while gasoline is cheaper than it was a year ago, diesel remains close to the pre-2022 record price set in 2008. Greater demand for North American diesel by Europe in the wake of the war in Ukraine kept diesel prices so high.
While relatively few US drivers use diesel for their private cars, it is still the fuel used by most heavy trucks, so it had an impact on the average American’s wallet. Most trucking companies charge a fuel surcharge to their customers when diesel prices increase. Because virtually all goods purchased by Americans are on a truck at some point before those purchases, that was a factor driving inflation higher.
The wild swings in oil and gasoline prices were a major factor in battered consumer confidence during the year. But those swings were not felt evenly across the nation and throughout the year. Many of the western states faced much higher gas prices because of more limited refining capacity. But there were a number of refinery accidents throughout the year that caused spikes in other regions as well. So, everyone saw wide swings in prices, though not always at the same time.
There is also the wide variation in gas taxes, from 68 cents a gallon in California to only 15 cents a gallon in Alaska. Some states temporarily halted their state gas taxes during the year in the face of high prices.
But the difference in average income in the different states meant that drivers in some of the states with relatively low prices had to work almost as many hours to buy 15 gallons of gas as those drivers in high-priced states.
For example, in Mississippi, where the hourly average wage in November was $24.52, according to the Labor Department, it took 1 hour and 41 minutes of work to earn enough to pay for 15 gallons at $2.75 a gallon at year’s end. In California, where the average price of regular was $4.38 a gallon, or about 60% more than in Mississippi, the average hourly wage of $37.61 meant that they only had to work four more minutes to buy those 15 gallons.
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These 20 energy stocks are worth a look if you think oil prices will soar in 2023
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Harris Kupperman, the president of Praetorian Capital, made a couple of interesting calls heading into 2022. He predicted that stocks of the giant tech-oriented companies that led the bull market would be sold off, and that oil prices would continue to rise through the end of 2022.
The first prediction came true, while the second one for oil prices fizzled. After rising to $130 in March, oil prices have fallen back to where they started the year. Then again, that second prediction still could have made you a lot of money because the share prices of oil companies kept rising anyway.
That leads to a new prediction for 2023 and a related stock screen below.
Here’s a chart showing the movement of front-month contract prices for West Texas Intermediate (WTI) crude oil
CL.1,
-0.62%
since the end of 2021:
FactSet
Even though Kupperman didn’t get his oil price call right, the energy sector of the S&P 500
SPX,
-1.20%
was up 60% for 2022 through Dec. 27, excluding dividends. That is the only one of the 11 S&P 500 sectors to show a gain in 2022. And the energy sector is also cheapest relative to earnings expectations, with a forward price-to-earnings ratio of 9.8, compared with 16.7 for the full S&P 500.WTI pulled back from its momentary peak at $130.50 in early March, but that didn’t reverse the long-term trend of low capital spending by oil and natural gas producers, which has given investors confidence that supplies will remain tight.
Vicki Hollub, the CEO of Occidental Petroleum Corp.
OXY,
-3.50%
— the best-performing S&P 500 stock of 2022 — said during a recent interview that there was “no pressure to increase production right now,” citing a $40 per barrel break-even point for oil prices.Kupperman now expects strong demand and low supplies to push oil as high as $200 a barrel in 2023.
At the end of November, these 20 oil companies stood out as reasonable plays for 2023 based on expectations for free-cash-flow generation and dividend payments.
For this next screen, we are only looking at ratings and consensus price targets among analysts polled by FactSet.
There are 23 energy stocks in the S&P 500, and you can invest in that group easily by purchasing shares of the Energy Select SPDR ETF
XLE,
-2.24% .
We can expand the list of large-cap names by looking at the components of the iShares Global Energy ETF
IXC,
-1.91% ,
which holds all the energy stocks in the S&P 500 plus large players based outside the U.S.The top five holdings of IXC are:
Company Ticker Country % of portfolio Share “buy” ratings Dec. 27 price Price target Implied 12-month upside potential Exxon Mobil Corp. XOM,
-1.64% U.S. 16.4% 54% 110.19 118.89 7.89% Chevron Corp. CVX,
-1.48% U.S. 11.5% 54% 179.63 190.52 6.06% Shell PLC SHEL,
-0.70% U.K. 7.8% 83% 23.67 29.82 25.99% TotalEnergies SE TTE,
-1.40% France 5.6% 62% 59.63 64.40 8.00% ConocoPhillips COP,
-2.67% U.K. 5.4% 83% 118.47 140.84 18.88% Source: FactSet Prices on the tables in this article are in local currencies.
IXC holds 51 stocks. To expand the list for a stock screen, we added the energy stocks in the S&P 400 Mid Cap Index
MID,
-1.24%
and the S&P Small Cap 600 Index
SML,
-1.89%
to bring the list up to 91 companies, which we then pared to 83 covered by at least five analysts polled by FactSet.Here are the 20 companies in the list with at least 75% “buy” or equivalent ratings that have the most upside potential over the next 12 months, based on consensus price targets:
Company Ticker Country Share “buy” ratings Dec. 27 price Price target Implied 12-month upside potential EQT Corp. EQT,
-7.82% U.S. 83% 36.34 59.14 63% Green Plains Inc. GPRE,
-2.72% U.S. 80% 29.80 43.40 46% Cameco Corp. CCO,
+0.33% Canada 100% 30.48 44.25 45% Talos Energy Inc. TALO,
-8.40% U.S. 86% 19.77 28.67 45% Ranger Oil Corp. Class A ROCC,
-6.22% U.S. 100% 41.33 58.00 40% Tourmaline Oil Corp. TOU,
-4.92% Canada 100% 71.40 98.83 38% Civitas Resources Inc. CIVI,
-4.06% U.S. 100% 58.82 80.83 37% Inpex Corp. 1605,
-2.08% Japan 88% 1,477.00 1,965.56 33% Diamondback Energy Inc. FANG,
-2.26% U.S. 84% 137.58 181.90 32% Santos Limited STO,
-3.12% Australia 100% 7.20 9.26 29% Matador Resources Co. MTDR,
-3.98% U.S. 79% 57.59 73.75 28% Targa Resources Corp. TRGP,
-2.63% U.S. 95% 73.89 94.05 27% Cenovus Energy Inc. CVE,
-2.55% Canada 84% 26.24 33.22 27% Shell PLC SHEL,
-0.70% U.K. 83% 23.67 29.82 26% Ampol Limited ALD,
-2.89% Australia 85% 28.29 35.01 24% EOG Resources Inc. EOG,
-3.54% U.S. 79% 132.08 157.52 19% ConocoPhillips COP,
-2.67% U.S. 83% 118.47 140.84 19% Repsol SA REP,
-0.66% Spain 75% 15.05 17.88 19% Halliburton Co. HAL,
-3.03% U.S. 86% 39.27 45.95 17% Marathon Petroleum Corp. MPC,
-1.97% U.S. 76% 116.82 132.56 13% Source: FactSet Click on the tickers for more information about the companies.
Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.
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