Energy stocks turned out to be the biggest winner this year in a bleak period for equities. Wall Street analysts believe the energy stocks will retain their position throughout 2023. Although oil prices strive to pull back from the level-highs, energy stocks still appear to charge higher. The explanation for this statement is the relatively cheap earnings and valuations expectations appearing to be a bright dawn to an otherwise grim S&P 500 outlook earnings.
Energy sector investors have trimmed their earnings per share for 2023 all year. This shift comes after downward revisions in 9 of the 11 sectors within the S&P 500 industry between the end of September and the end of November. Nonetheless, the other two sectors recorded an increase in bottom-up EPS over the same period. The energy sector led the increase by a 4.4% revision in expectations. Besides, utility stocks rose by about 0.9% in the same period.
Despite the high expectations that the energy sector might face difficult year-over-year comparisons, it recorded upward changes to estimates. The analyst also predicted that the sector could face a -7.3% revenue decline next year following a blowout in 2022. In any case, the S&P 500 sector would have recorded a -1.8% index decline if it excluded the 5.1% earnings growth in energy. Oil companies remained productive despite oil price surges.
Experts believe that most companies will refrain from making rash decisions in increasing production due to the oil price swings. Generally, the broader benchmark index remains at about 19%, while the energy sector surged almost 55%, with the other 10 S&P 500 sectors remaining negative throughout 2022. CVX (Chevron) rose by 40%, and XOM (Exxon Mobil) rose by 65%, marking the largest gas & oil companies in the US.
On the other hand, OXY (Occidental Petroleum) increased its shares to mark a star performer in the 2023 trading period. Thus, oil gains reversed after hitting a $120 per barrel record-high rate in June. These changes are due to the supply & demand concerns that relate to the Russian invasion of Ukraine, Covid-19 restrictions in China, inflation, and rising interest rates. These factors together contributed to extreme energy volatility in 2022.
Although Wall Street features lower expectations of price spikes next year, some analysts still believe that oil prices might move even higher in 2023. The explanation for the higher prices in 2023 could be China reopening its economy following Covid-19 closures over the last three years. Brent crude oil might average at $98 per, while WTI, which marks the US benchmark price, might average at $92 per barrel.
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