The S&P in 2023: Down 34% or Up 25%? thumbnail

The S&P in 2023: Down 34% or Up 25%?

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Analysts predictions were especially bad in 2022 … how are they shaping up for 2023? … unexpectedly good news about U.S. consumers spirits … an Eric Fry free pick … oil in 2023

Analysts’ estimates for where stocks will trade 12 months ahead are usually pretty awful. But in 2022, analysts took their awfulness to the next level.

Here’s MarketWatch:

Wall Street often gets it wrong when it comes to anticipating where stocks might be trading one-year out.

But in 2022, its forecasters were set to miss the mark by the widest margin in nearly 15 years, according to data compiled by FactSet.

Wall Street equity analysts were on pace to overestimate the performance of the S&P 500 index in 2022 by nearly 40% as of Tuesday…

That would mark their biggest miss since 2008 when analysts overshot by 92%.

Not wanting to repeat this mistake, many Wall Street analysts began trimming their 2023 forecasts in recent weeks.

MarketWatch conducted a survey of top Wall Street forecasters and found the average estimate for where the S&P will close next year is 4,031. That’s roughly 6% higher than where the S&P trades as I write Thursday mid-morning.

The most bullish of these estimates comes from Deutsche Bank, clocking in at 4,500 (a 16% gain). BNP Paribas is the most bearish, calling for a slide to 3,400 (a 12% loss). Other forecasts are somewhere in the middle, but are not clustered near any one prediction.

As we’ve noted in past Digests , the wide dispersion of estimates is especially noteworthy because it reveals no one really knows what’s coming. MarketWatch even called this out, noting “Forecasts, however, from the group were spread over an unusually wide range…”

But the divergence in analysts’ forecasts for next year are nothing compared to the difference in how strategists see things shaping up.

To make sure we’re on the same page, analysts usually cover individual stocks and sectors. Strategists typically look at markets from a “top down” approach, meaning they begin their analysis with broader macro data.

If you’re a bull, you’re cheering for Tom Lee, the head of research at Fundstrat Global Advisors. He’s calling for the S&P to surge to about 25% to 4,750 next year. He bases this on his belief that inflation is on its way out.

Bears look to Chris Senyek chief investment strategist at Wolfe Research. He expects the S&P will crater by roughly 34% to 2,500. He’s basing this on the unprecedented scope of monetary tightening that he expects will push the U.S. into a recession and chop GDP growth.

As we look for clues about the market’s direction in 2022, yesterday brought an unexpected bullish surprise about the U.S. consumer

To explain, let’s jump to legendary investor Louis Navellier and yesterday’s Market Alert podcast from his Accelerated Profits service:

Consumer confidence exploded to the upside [yesterday]. That was a huge surprise.

Economists were actually expecting a slight decline. But now, consumer confidence is back at the highest level since April of this year.

Here’s MarketWatch on what could be behind the unexpected consumer optimism:

Falling gas prices have helped to bolster the confidence of consumers and ease their worries about inflation.

Inflation expectations fell to the lowest level in a year, indicating consumers believe price pressures will continue to dissipate…

A rebound in the stock market also helped to increase confidence last month, economists said.

We believe that the S&P’s path next year will boil down to the health of the U.S. consumer, and by extension, corporate bottom lines. That makes yesterday’s news especially positive.

By the way, tomorrow, we’ll receive the latest Personal Consumption Expenditures Price Index report, which is the Fed’s preferred inflation gauge. This will give us more insight into the latest on inflation and how it’s impacting the health of the U.S. consumer.

While on the topic of positive, unexpected surprises, a quick “congrats” to Eric Fry’s Speculator subscribers for booking an unexpected 76% on their Maxar position

Here’s Eric to explain what happened last week:

Before the stock market opened [last Friday], Maxar Technologies Inc. (MAXR) received a takeover offer from private Boston-based equity firm, Advent International.

Thanks to the all-cash offer, Maxar shares have rocketed more than 120%.

That’s mostly great news.

Obviously, it’s always great news to see one of our portfolio positions jump 120% in a single day… especially in a market that is serving up mostly minus signs.

The only slight downside is that Maxar is a stock that could have delivered a 1,000% gain over time. Based on my analysis, the company was just entering a very powerful growth phase.

Despite the opportunity cost Eric described, subscribers walked away with 76% gains over an investment period that saw the S&P lose 6%. Congrats to all Speculator subscribers on a solid win.

Now, for all you non-Speculator subscribers, let’s not leave you out in the cold.

If you missed Eric’s Maxar pick, I’ll put another one of his recommendations on your 2023 horizon – TotalEnergies SE (TTE).

Here’s Eric with the background:

This French multinational energy firm integrates “Old Energy” and “New Energy” to cover every major facet of the industry – from oil and gas to renewables like solar, wind, and green hydrogen.

This flexibility and its diverse revenue streams make TTE a standout among energy companies; its portfolio stands to make it a star in the entire energy sector.

Eric explains how TTE has exposure to solar power thanks to a stake in SunPower, which is a leading U.S. manufacturer of solar panels. Plus, earlier this year, it made a commitment to invest $50 billion in green hydrogen and other renewable energy sources, like wind power.

But as we’ve noted here in the Digest, in our immediate future, fossil fuel energy remains as important as ever. Our global economy simply cannot run without oil and gas.

Well, TTE has you covered there too.

Back to Eric:

[Last Friday] Reuters announced that TTE, Petrobras-Petroleo Brasiliero SA (PBR), QatarEnergy (owned by the Qatar government), and Petronas (owned by the Malaysian government) won the rights to the offshore pre-salt Agua Marinha block in the Campos Basin.

TTE will hold 30% of those rights, which bodes well for the company’s long-term growth potential in conventional energy.

If you’re looking for full-spectrum energy exposure, give TTE a look.

We can’t mention fossil fuels without bringing Louis back into the mix

Regular Digest readers know that Louis is an oil and gas bull, having loaded several of his portfolios with top-tier energy plays.

Here’s Louis with his latest thoughts on energy:

Europe is trying to put a cap on natural gas prices. That’s a political ploy that will not work.

So, natural gas is going to be good because it’s cold here and in Europe.

And then, crude oil is firming up. And I think the biggest development in crude oil will be the end of the Strategic Petroleum Reserve releases. That’s 182 million barrels we’ve released this year that will be off the market. And that’s going to put a lot of upward pressure on crude oil prices.

CNBC had an expert [two days ago] saying that crude oil is going to hit $121 a barrel next year. My prediction for $120 a barrel is pretty much in line.

You just read one of Eric’s preferred ways to play energy. For Louis’ picks in Accelerated Profitsclick here.

We’ll keep you updated on all these stories and more here in the Digest.

Have a good evening,

Jeff Remsburg