It’s time again for my annual predictions for markets and economies.
After going 5-for-5 in 2021, last year was much more difficult to predict. A war, energy crisis and China’s Covid obsession will do that. I’d call my 2022 predictions a two-for-two, with a long-term “we shall see” on the baby boom prediction.
On a macro note, although we have been reporting on 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 coming for the Ukrainian people.
So let’s be clear that the main prediction we should all hope for is a speedy resolution to the war and a change at the top in Moscow (aka goodbye, Putin!).
Outside of that, Europe and the world’s fortunes could change very quickly at any time. That in mind, here are some thoughts on this year, and please remember none of this is meant as investing advice, just my own thoughts on the year ahead.
Hey, after 12 years of doing this, you should know that by now. Here we go, 2023 … it’s in your hands now.
Prediction #1: S&P 500 posts small gain
History says that stocks can rise even if the U.S. enters recession, which is a nearly certain outcome. But while every Wall Street strategist is now tripping over themselves to post lower and lower year-end S&P 500 price targets (after being spectacularly wrong this year), I think stocks muddle along and end up slightly in the green.
It won’t be a great year. I hope I’m wrong about that.
Where could I go wrong?
If I’m wrong – and if stocks do fall this year – history says it could actually be a worse year in 2023 than 2022. When markets fall two years in a row, it usually means a terrible second year of declines.
Prediction #2: Oil pops, nat gas drops
Even with a recession coming in the U.S. and perhaps something worse in Europe, it’s difficult not to see how oil does not jump in price at some point this year.
Capital spending growth by U.S. oil companies remains below what some hope for, Russia’s oil infrastructure will start to rot the longer they have to go without western oil technology, investment and knowhow, and China demand could really pop if they continue 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 is likely to go the other way: either staying where it is or even falling further. There is no new export capacity built into the U.S. this year. That will come online either mid-2024 or even 2025.
Assuming oil production grows, natural gas production may also pop, with nowhere to go as we may have maxed out European exports. That would lead to an oversupply of natural gas and more weakness in price.
Where could I go wrong?
A severe European recession combined with a return to record U.S. oil production could keep the world fully supplied and price gains muted. For natural gas, when the still-offline Freeport LNG facility returns to production, perhaps it will draw enough new gas demand to keep prices firm to even higher.
A complete collapse in Russian LNG exports (yes, Russia is still quietly exporting LNG) could also help firm U.S. prices. This is good news for Europe, by the way.
Prediction #3: Europe stocks beat the U.S.
This seems crazy given Europe’s ongoing energy crisis and economic woes. That’s the point.
Markets tend to do things that don’t always make sense, and I think this is one of those times.
Don’t confuse economies with markets. Despite Europe’s ongoing woes – of which the seeds were laid well before Putin’s insane war – their ongoing energy crisis could prompt countries and the European Central Bank to stimulate via monetary and fiscal options.
While we raise rates, one wonders if popular anger over soaring inflation flips central bankers on their heads overseas and they begin to stimulate again. Watch ETFs like the Vanguard Stock European Index Fund over the S&P 500.
Where could I go wrong?
Europe’s clear economic problems and worsening energy crisis turn into a full-fledged investor panic, sending shares much lower.
Prediction #4: Tik Tok goes away, Snap goes private
The backlash against so-called social media companies is only growing. It’s one thing a divided Congress can actually agree on.
Tik Tok is under the gun from Washington, D.C. because it’s perceived (likely correctly) as an arm of the Chinese government that is essentially spying on users like our children.
Snap has broken. The stock has gone from a high of over $80 just more than one year ago to under $10 as I write this. Unsustainable.
Look for a Musk-like buyout here.
Where could I go wrong?
Congress succumbs to lobbying money over Tik Tok and/or Snap just muddles along with no investors able or willing to remove it from its painful run as a public company.
Prediction #5: U.S. EV sales begin to stall
Yes, I’m flip-flopping on my prediction of hot E.V. growth from last year. But with a recession likely coming in the U.S., the Inflation Reduction Act hurting tax credits on many models, and prices for the cars rising with raw materials, it’s hard to see sales staying hot.
By the way, this goes to traditional cars as well.
Prices are just too high as interest rates rise. The growth rate of EV sales will actually drop in 2023 from 2022. Growth, just at a slower pace.
Where could I go wrong?
Demand for EVs is strong enough among higher income buyers that borrowing costs and rising prices simply don’t matter to millions of consumers.
Bonus thoughts that almost made the top 5: inflation stays above 4% as wage increases show themselves to be sticky; job growth continues as people return to the workforce as their Covid-related savings begin to dwindle; we will see at least one major commercial real estate bankruptcy as offices stay empty in places like San Francisco; Jacksonville Jaguars win the Super Bowl. Have a great year everyone!