Recession fears threaten the stardom of energy stocks on Wall Street

It seems that the shine of energy stocks in the sky of “Wall Street” for consecutive years will fade slightly at the beginning of the week, due to fears of a possible recession in the United States, in addition to that there are many comparisons between the position of these stocks now and what they were in 2022; Despite the reviews it is seen as still, relatively, less expensive.
The energy sector on the Standard & Poor’s 500 index is up 4.2% year-to-date, slightly behind the broader index’s rise; This sector had recorded a jump of 59% in 2022, which was a harsh year for stocks in general, which witnessed a decline in the index by 19.4%.
Those who see the rise in energy stocks say that its valuations consolidate its gains for the third year in a row, and this may be its first huge performance since 2013; Among the “Wall Street” companies that recommend these stocks are “Goldman Sachs”, “RBC Capital Markets”, and “UBS Global” for wealth management.

Despite weak stock trading last year, the forward price-to-earnings ratio of energy stocks traded at 10 times compared to 17 times for the broad market, and many of them yield strong dividend returns.
The potential returns for shareholders were highlighted this week when Chevron shares rose nearly 5% following the announcement of plans to buy shares worth $75 billion.
Despite all this, some investors worry that energy companies, despite the big leaps they made in 2022, may now find it difficult to increase their profits, especially if commodity prices are affected by the widely expected economic slowdown in the United States. Some large investors see that the group of energy stocks is holding up well and are adding them to their portfolios slightly.
Those worried may be right, as a Archyde.com survey showed that economic analysts expect the average price of US crude to reach $84.84 per barrel in 2023, compared to an average price of $94.33 last year. Citing expectations of a weak global economy. US crude oil prices recently stood at around $80 a barrel.
At the same time, many investors have consolidated their holdings of energy stocks in 2022 after years of avoiding a sector that has often underperformed the broader market, amid concerns, some related to inefficient capital allocation by companies and uncertainty about the future of fossil fuels.

The sector’s weight on the “Standard & Poor’s 500” index nearly doubled last year to 5.2% when investors returned strongly to it, but this dynamic may not be present in the current year. It is expected that energy companies will present strong quarterly reports in the coming weeks after the massive year 2022, but it is also expected that the numbers issued will be the ceiling for what the sector may achieve this year.
With 30% of the sector’s 23 companies reporting so far, it is expected, according to Refinitiv IBES, that energy profits for the fourth quarter are expected to have increased by 60% from the previous year, and 155% for the whole of 2022. Earnings are now expected to drop 15% this year, the largest decline among the 11 sectors on the index.

Reports and the “federal”

Among the reports scheduled for release next week are those of Exxon Mobil and ConocoPhillips, while investors will also focus on the latest developments in the Federal Reserve’s policy at its meeting. The dividend yield for the energy sector was 3.43% as of the end of 2022, which is nearly double the level of the index in general.
Energy companies conducted $22 billion in share buybacks in the third quarter, which is about 10% or slightly more of all share buybacks in the entire index. Some analysts believe that from a total return perspective the energy sector can still continue to differentiate itself in the stock market while others believe there may be more value in areas of the market that have suffered defeat in the past year.

Highlights of the week’s economic events

Monday

Results: NXB Semiconductor, GE Healthcare, Canon, Ryanair, Whirlpool

Tuesday

Results: Exxon Mobil, Pfizer, McDonald’s, Amgen, Caterpillar, Stryker, Chubb, Mondelez International, UPS, General Motors.
8:30 Employment Cost Index / Fourth Quarter.
9:00 S&P Schiller-Case Home Price Index (seasonally adjusted annual rate) – November.
10:00 Consumer Confidence Index / January.
10:00 Adjustment of the rental vacancy / fourth quarter.

Wednesday

Results: Meta platforms, Novo Nordisk, Novartis, T-Mobile, Sony
8:15 Employment report according to automatic data processing.
10:00 Job/Dec.
10:00 leave work / december.
14:00 Fed funds rate.
14:30 Federal Reserve Chairman Jerome Powell’s press conference.

Thursday

Results: Apple, Alphabet, Amazon, Eli Lilly, Merck & Co, Qualcomm, Honeywell, Starbucks, Gilead Sciences, Ford Motor.
8:30 Initial claims for unemployment benefits
8:30 Continuing Claims for Unemployment Benefits
8:30 Productivity, First Estimate (Seasonally Adjusted Annual Average) – Fourth Quarter

Friday