Posted this morning from Reuters was an excellent article coving the looming recession fears and Wall Streets’ expected responses. With the energy sector being the best-performing area of the market last year, it will be interesting to watch this year’s investor participation.
The ESG investing movement has had a tremendous impact on the energy space. The positive effect on the oil companies was the change in the boardroom commitment to return profits to shareholders. The flip side of this newfound corporate conscience of investor returns severely limited the capital for re-investment in drilling programs.
A potential U.S. recession and tough comparisons to a stellar 2022 are weighing on the prospects of energy stocks delivering an encore to last year’s stunning run, despite valuations that are seen as still comparatively cheap.
The S&P 500 energy sector (.SPNY) is up 4.2% year-to-date, slightly lagging the rise for the broader index (.SPX). The sector logged a 59% jump in 2022, an otherwise brutal year for stocks that saw the S&P 500 drop 19.4%.
Energy bulls argue the sector’s valuations bolster the case for a third-straight year of gains, which would be the first such feat for the group since 2013. Goldman Sachs, RBC Capital Markets and UBS Global Wealth Management are among the Wall Street firms recommending energy stocks.
So with BlackRock’s epic failure in the first half of 2022 with a loss of $1.7 trillion with their heavy ESG funds, they are making a gradual messaging change. You will see more of their stealth messaging to allow natural gas and nuclear into their portfolio. Is it because the states like Texas threw BlackRock out, or is the ESG investor losing interest?
People have come back to energy in a big way,” he said. “We had that tailwind the last couple of years, which was that everyone was under-invested in energy. I don’t think that’s the case anymore.”
And while energy companies are expected to deliver strong quarterly reports over the coming weeks after a roaring 2022, those numbers may have set a high bar for this year.
With 30% of the sector’s 23 companies reported so far, energy’s fourth-quarter earnings are expected to have climbed 60% from a year earlier, and 155% for full-year 2022, according to Refintiv IBES. But earnings are expected to decline 15% this year, the biggest drop among the 11 S&P 500 sectors.
Exxon Mobil (XOM.N) and ConocoPhillips (COP.N) are among the reports due next week, when investors also will focus on the Federal Reserve’s latest policy meeting.
This brings up the oil and gas pricing question. Where do you think oil and gas pricing is going in 2023? I have seen projections all over the map. Ranging from $65 to $150 and everywhere in between. Let Michael and myself know your thoughts on the EnergyNewsBeat Questions Form, comment below, or email us at: questions@energynewsbeat.com.
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