Oil plunge, tech collapse and Fed cuts? Strategist shares possible 2023 market ‘surprises’
A trader works on the floor of the New York Stock Exchange (NYSE) in New York City, August 29, 2022.
Brendan McDermid | Reuters
After a tumultuous year for financial markets, Standard Chartered outlined a number of potential surprises for 2023 that it says are being “underpriced” by the market.
Eric Robertson, the bank’s head of research and chief strategist, said outsized market moves are likely to continue next year, even if risks decline and sentiment improves. He warned investors to prepare for “another year of shaken nerves and rattled brains.”
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The biggest surprise of all, according to Robertson, would be a return to “more benign economic and financial-market conditions,” with consensus pointing to a global recession and further turbulence across asset classes next year.
As such, he named eight potential market surprises that have a “non-zero probability” of occurring in 2023, which fall “materially outside of the market consensus” or the bank’s own baseline views, but are “underpriced by the markets.”
Collapsing oil prices
Oil prices surged over the first half of 2022 as a result of persistent supply blockages and Russia’s invasion of Ukraine, and have remained volatile throughout the remainder of the year. They declined 35% between June 14 and Nov. 28, with output cuts from OPEC+ and hopes for an economic resurgence in China preventing the slide from accelerating further.
However, Robertson suggested that a deeper-than-expected global recession, including a delayed Chinese recovery on the back of an unexpected surge in Covid-19 cases, could lead to a “significant collapse in oil demand” across even previously resilient economies in 2023.
Should a resolution of the Russia-Ukraine conflict occur, this would remove the “war-related risk premia” — the additional rate of return investors can expect for taking more risk — from oil, causing prices to lose around 50% of their value in the first half of 2023, according to Robertson’s list of “potential surprises.”
“With oil prices falling quickly, Russia is unable to fund its military activities beyond Q1-2023 and agrees to a ceasefire. Although peace negotiations are protracted, the end of the war causes the risk premium that had supported energy prices to disappear completely,” Robertson speculated.
“Risk related to military conflict had helped to keep front contract prices elevated relative to deferred contracts, but the decline in risk premia and the end of the war see the oil curve invert in Q1-2023.”
In this potential scenario, the collapse in oil prices would take international benchmark Brent crude from its current level of around $79 per barrel to just $40 per barrel, its lowest point since the peak of the pandemic.
Fed cuts by 200 basis points
The main central bank story of 2022 was the U.S. Federal Reserve’s underestimation of rising prices, and Chairman Jerome Powell’s mea culpa that inflation was not, in fact, “transitory.”
The Fed has subsequently hiked its short-term borrowing rate from a target range of 0.25%-0.5% at the start of the year to 3.75%-4% in November, with a further increase expected at its December meeting. The market is pricing an eventual peak of around 5%.
Robertson said a potential risk for next year is that the Federal Open Market Committee now underestimates the economic damage inflicted by 2023’s massive interest rate hikes.
Should the U.S. economy fall into a deep recession in the first half of the year, the central bank may be forced to cut rates by up to 200 basis points, according to Robertson’s list of “potential surprises.”
“The narrative in 2023 quickly shifts as the cracks in the foundation spread from the most highly leveraged sectors of the economy to even the most stable,” he added.
“The message from the FOMC also shifts rapidly from the need to keep monetary conditions restrictive for an extended period to the need to provide liquidity to avoid a major hard landing.”
Tech stocks fall even further
Growth-oriented technology stocks took a hammering over the course of 2022 as the steep rise in interest rates increased the cost of capital.
But Standard Chartered says the sector could have even further to fall in 2023.
The Nasdaq 100 closed Monday down more than 29% since the start of the year, though a 15% rally between Oct. 13 and Dec. 1 on the back of softening inflation prints helped cushion the annual losses.
On his list of potential surprises for 2023, Robertson said the index could slide another 50% to 6,000.
“The technology sector broadly continues to suffer in 2023, weighed down by plunging demand for hardware, software and semiconductors,” he speculated.
“Further, rising financing costs and shrinking liquidity lead to a collapse in funding for private companies, prompting further significant valuation cuts across the sector, as well as a wave of job losses.”
Next-generation tech companies could then see a surge in bankruptcies in 2023, shrinking the market cap share of these companies on the S&P 500 from 29.5% at its peak to 20% by the end of the year, according to Robertson.
“The dominance of the tech sector in the S&P 500 drags the broader equity index lower too,” he suggested, adding: “The tech sector leads a global equity collapse.”
After recently launching its newest electric scooter, the Gogoro JEGO Smartscooter, deliveries of the hot-selling electric scooters are ready to begin. This marks a new page for Gogoro, the world’s largest battery-swapping network operator, and makes swappable battery electric scooters more affordable than ever.
The Gogoro JEGO launched in Taiwan last month, quickly racking up over 6,500 fully-paid pre-orders in that short time.
Gogoro already dominates the local market with around a 90% share of new electric scooter registrations in Taiwain. According to Gogoro, JEGO sales are showing the strongest demand for a Gogoro vehicle since the beginning of the pandemic. The company’s domestic market of Taiwan is by far its largest, though Gogoro scooters and battery swapping stations have now expanded to much of Asia as Gogoro expands its footprint.
With an introductory price that drops as low as just US $760 after government subsidies, the JEGO is positioned as an affordable new model to open up the local market further and entice more price-sensitive combustion engine scooter riders.
The scooter was built around Gogoro’s well-known battery standard, allowing one or two battery packs to power the vehicle around cities and urban areas. Riders buy the scooter but don’t own the batteries, instead subscribing to a swapping plan. That helps reduce the price of the scooter further and ensures Gogoro can get the longest life out of the batteries possible via intelligent charging and swapping doctrines. Having started its swapping programs back in 2015, Gogoro has learned that its batteries are lasting even longer than originally anticipated, with a new estimated lifespan of around 12 years.
An affordable new battery-swapping subscription plan was also announced along with the JEGO, offering new riders a US $7/month plan to cover up to 1,000 km (621 miles) of riding per month when signing up for a three-year plan.
The JEGO’s goal of converting existing combustion engine scooter riders over to electric seems to be working well.
“JEGO has touched a positive chord with a new market segment of Taiwan riders – nearly all of our 6,500 pre-order customers are first-time EV riders. They are looking for a smart, convenient, and sustainable vehicle and are not just embracing JEGO’s innovation and design but also access to Gogoro’s vast battery-swapping network,” said Horace Luke, founder and CEO of Gogoro. “Initial JEGO sales are surpassing our expectations and showing the strongest demand we’ve seen since the beginning of the pandemic. With deliveries beginning this week, we expect to realize JEGO’s pre-order revenue this quarter.”
At the same time as Gogoro expands its entry-level offering with the JEGO, Gogoro is also preparing for the rollout of its recently revealed premium-level Gogoro Pulse. That high-performance model, which also uses the same Gogoro swappable battery packs, includes a number of automotive-style features never before seen in the electric scooter market.
The dual-pronged approach reveals Gogoro’s ability to innovate on both ends of the market, serving both entry-level riders and higher-performance enthusiasts.
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Amid a shifting strategy, Ford (F) reported first-quarter earnings Wednesday, beating analyst expectations. However, due to fierce pricing pressure, Ford’s EV revenue fell 84% in Q1 2024.
Ford shifts EV strategy amid sales upswing
Despite EV sales surging 86% to 20,233 in the first three months of 2024, Ford is pulling back. All Ford electric models saw double (or triple) digit sales growth.
The F-150 Lightning remained the top-selling electric pickup in the US, with 7,743 models sold, up 80% over last year. Ford’s Mustang Mach-E was the second best-selling electric SUV in the US, with 9,589 vehicles delivered, up 77% over Q1 2023.
Meanwhile, Ford’s commercial Pro unit continues to appear as a dark horse for the automaker, with EV adoption rising 40%. Ford E-Transit sales were up 148% in Q1, with 2,891 units sold.
Ford’s growth propelled it to second in the US EV market (if you don’t include combined Hyundai and Kia sales).
The sales surge comes after Ford introduced significant price cuts and savings on the Mach-E and Lightning earlier this year.
Despite rising EV sales, Ford announced it is pushing back EV production at its BlueOval City facility to 2026. It is also delaying the launch of its three-row electric SUV to focus on smaller, more affordable EVs.
In the meantime, Ford said it would introduce more hybrids to the mix as it develops its next-gen electric models.
Ford’s Model e EV unit had a net loss of around $4.7 billion last year with “extremely competitive pricing” and new investments. Meanwhile, EBIT loss slipped to $1.6 billion in Q4.
Analysts expect Ford to report $40.10 billion in revenue in its Q1 2024 earnings report. Ford’s Model e, EV unit, is expected to generate around $24.5 billion in revenue with an EBIT loss of $1.65.
Ford Q1 2024 earnings results
Ford reported first-quarter 2024 revenue rose 3% to $42.8 billion, topping estimates of around $40.10 billion. Ford also topped adjusted EPS estimates with $0.49 per share in Q1 vs $0.42 expected.
The automaker posted net income of $1.3 billion, down from $1.8 billion last year. Adjusted EBIT fell 18% to $2.8 billion due to lower prices and the timing of the F-150 launch.
Ford Blue, the company’s ICE business, saw revenue fall 13%, again due to the new F-150 launch.
Ford Pro was the growth driver, with volume and revenue up 21% and 36%, respectively. The commercial and software business had an EBIT margin of nearly 17%, with first-quarter revenue of $18 billion.
Meanwhile, Ford Model e revenue slipped 84% due to “industry-wide” pricing pressure. With lower prices, the unit’s EBIT loss increased YOY to $1.3 billion. That’s about a $64,000 loss for every EV sold in Q1. However, this is still down from the $1.6 billion EBIT loss in Q4 2023.
Ford expects EV costs to improve going forward, but it will be offset by top-line pressure.
The automaker is maintaining full-year EBIT guidance, expecting to hit the higher end of the $10 billion to $12 billion range. The company now expects to generate between $6.5 billion and $7.5 billion in adjusted free cash flow, up from the previous $6 billion to $7 billion.
According to Ford, the updates reflect recent cost-cutting actions, like the delayed EV investments. Ford’s update comes after rival GM also raised full-year guidance this week.
Meanwhile, Ford is releasing a new brand campaign called “Freedom of Choice” to promote its gas, hybrid, and EV lineup amid the strategy shift.
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