It’s time again for the annual forecast for markets and the economy.
After going 5-for-5 in 2021, last year was harder to predict. War, energy crisis and China’s Covid obsession will do it. I’d call the 2022 prediction two-for-two, with a long-term “we’ll see” on the baby boom prediction.
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On a macro note, although we’ve been reporting and talking about the UK and European energy crisis since before the war, I’m not sure anyone saw this level of escalation and pain for Ukrainians.
So let’s be clear that the main prediction we should expect is a quick resolution to the war and a change at the top in Moscow (aka goodbye, Putin!).
Beyond that, the fortunes of Europe and the world can change quickly at any time. With that in mind, here are some thoughts for this year, and remember none of this is meant as investment advice, just my own thoughts on the year ahead.
Hey, after 12 years of doing this, you should know by now. Come on, 2023 … it’s in your hands now.
Prediction #1: S&P 500 posts small gain
History says that stocks can rise even when the US is in recession, which is almost always the result. But while every Wall Street strategist is now counting on sending the S&P 500 price target lower and lower (after a spectacular misstep this year), I think stocks are muddle and a bit green.
It’s not going to be a good year. I hope I’m wrong about that.
Where can I go wrong?
If I’m wrong – and if stocks fall this year – history says it could be a worse year in 2023 than 2022. When the market falls two years in a row, it usually means a second year of terrible decline.
Prediction #2: Oil goes up, gas goes down
Even with a recession in the US and possibly worse in Europe, it’s hard not to see how oil prices won’t rise at some point this year.
Capital spending growth by US oil companies remains below expectations, Russia’s oil infrastructure will continue to deteriorate without oil technology, investment and know-how, and China’s demand may pop if it continues to change course on Covid. .
oil will hit $100 at least for part of this year and likely end the year above $90 absent some major global crisis.
natural gas possibility to go the other way: either stay where it is or even fall further. No new export capacity was built in the US this year. It will be online in mid-2024 or even 2025.
If oil production increases, natural gas production may pop, there is nowhere to go because we can expand European exports. That will lead to an oversupply of natural gas and further weakness in prices.
Where can I go wrong?
A severe European recession combined with a return to record U.S. oil production could keep oil supplies tight around the world and its price could not be underestimated. For natural gas, when the remaining offline Freeport LNG facility returns to production, it will likely attract enough new gas demand to keep prices higher.
A complete collapse of Russian LNG exports (yes, Russia is still quietly exporting LNG) could also help US prices. This is good news for Europe, by the way.
Prediction #3: European stocks beat the US
This seems crazy given the ongoing energy crisis and economic problems in Europe. The point is.
Markets tend to do unpredictable things, and I think this is one of those times.
Don’t confuse the economy with the market. Despite the ongoing suffering in Europe – the seeds of which were laid before Putin’s crazy war – the ongoing energy crisis can lead to countries and the European Central Bank stimulating through monetary and fiscal options.
When we raise rates, one wonders if the popular anger over soaring inflation flips central bankers on the head overseas and they start to stimulate again. Watch ETFs like that Vanguard Stock European Index Fund over the S&P 500.
Where can I go wrong?
Europe’s apparent economic problems and the escalating energy crisis have sent investors into full-blown panic, sending stocks lower.
Prediction #4: Tik Tok disappears, Snap goes private
The backlash against so-called social media companies is only growing. This is one thing a divided Congress can agree on.
Tik Tok is under the gun from Washington, DC because it is perceived (probably rightly) as an arm of the Chinese government that is actually spying on users like children.
snap has been damaged. The stock has gone from a high of over $80 just over a year ago to $10 as I write this. It is not sustainable.
Look for buyouts like Musk’s here.
Where can I go wrong?
Congress succumbs to lobbying money through Tik Tok and/or Snap only muddles together with no investors able or willing to remove from painful pain as a public company.
Prediction #5: US EV sales start to stagnate
Yes, I flipped on the prediction of hot EV growth from last year. But with a looming recession in the US, the Inflation Reduction Act gutting tax credits on many models, and car prices rising with raw materials, it’s hard to see sales staying hot.
By the way, this is also for traditional cars.
Prices are only too high because interest rates are rising. The growth rate of EV sales will actually decrease in 2023 from 2022. Growth, only at a rapid pace.
Where can I go wrong?
Demand for EVs is strong enough among buyers with higher incomes that the cost of borrowing and rising prices are not an issue for millions of consumers.
Bonus thoughts that almost make the top 5: inflation remains above 4% as wage increases show themselves to be sticky; job growth continues as people return to the workforce as Covid-related savings begin to wane; we will see at least one major commercial real estate bankruptcy as offices remain vacant in places like San Francisco; The Jacksonville Jaguars won the Super Bowl. Have a great year everyone!