Personal Wealth Management / Market Analysis

Fisher Investments’ Founder, Ken Fisher, Provides His 2023 Energy Outlook

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer, Ken Fisher, shares his outlook for Energy stocks in 2023. Ken notes that historically, categories that outperform during a bear market—as the Energy sector did in 2022—tend to underperform during the early phase of the subsequent bull market. Given the Energy sector’s boost from the Ukraine war and the post-COVID reopening demand in 2022, he believes the sector likely underperforms in the new bull market this year.

Ken says Energy companies respond to higher prices by increasing production capacity to boost profits. Ironically, higher oil and gas production eventually leads to falling prices, all else equal. Ken believes rising oil and gas supply likely puts a lid on prices this year and expects Energy stocks to lag the broad market.

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Ken Fisher: I'm getting old. I wish I had more energy. The fact is, I'm going to give you something I've observed over my 50 plus years in the industry, when I was young. I mean you if you've listened to me lots of times before, you know, I believe in capitalism. I mean, I just think capitalism has been God's gift in God's own time to material, material benefits for humans.

Ken Fisher: Every good thing we have, whatever it is, came to us somehow, some way through capitalism. But then there's the stock market, which is a somewhat different thing. And all my life there have been the biggest stocks. If you go back to when I first started in the business a little over 50 years ago, there were the 20 largest stocks in the world.

Ken Fisher: Now, this was right during the heyday of the so called nifty 50, building up into the nifty 50 heyday, I should say. It was, it was just getting going. And if you go back and look 20 years later, at most of the 20 biggest stocks, they changed a lot. 40 years later, they had changed almost 100%. Not 100% come back to that.

Ken Fisher: But in that first group, there would have been Eastman Kodak, Polaroid, Xerox, General Motors, United States Steel, Sears Roebuck. And before long, they're gone. IBM not gone, but by today, much smaller big company still, but not what it was once the largest stock in the world. What has remained on those 20 largest stocks throughout every decade has been the few largest energy companies. They have just been able to endure in a way that is compared to other stocks. Unbelievable. And I think they probably will, because I think people underestimate the degree to it is impossible for this world to sidestep fossil fuel. Of course, I might be wrong.

Ken Fisher: That's the long term. In the short term, when we look at this year, 2023, what do I think about energy stocks, as stocks? I think they probably underperform the market. I think they're probably laggards. Why? I'm going to give you a couple of simple rules.

Ken Fisher: One, generally, whatever did best during a bear market doesn't during the subsequent bull market, generally, what does best early in a bull market, the first approximate year of it, eight to 13 months roughly, is whatever was hardest hit by categories. Not every stock, but categories. Whatever was hardest hit in the bear market typically bounces the most. And that bounce effect sometimes starts a little faster, sometimes starts a little slower, but after about three months, it's building momentum and going and that would be 2023.

Ken Fisher: Then finally, we did see tied to events that preceded the Ukraine war, and then with the Ukraine war, the price of energy go up. Now, it didn't really go up as much as headline numbers because of the discounted Russian oil that went to various countries that did not participate in sanctions, and you all know that, India and China, principally among majors, but some others as well. But higher energy prices and anticipation of higher energy prices boosted all of the features that our supply motivated to increase output throughout the other world, whether it's the Middle East, United States, wherever, natural gas and the Netherlands, wherever. And in all of that, what I'm saying to you is that tends to decrease subsequent pricing over time. Terminals built to ship natural gas adapted very quickly in 2022 to the dislocations created by sanctions in the war. And all of that builds more capacity. Think it through. If and when the war ends and those sanctions go away, you have even more relative capacity.

Ken Fisher: So, what I'm wanting to say to you is all of that tends to damper what will happen, because in the end, when it comes to energy stocks over time, price is actually more important than volume. Energy stocks are more price sensitive overall than they are volume sensitive. And therefore, that capping effect on price over time, which is 2023, probably puts a damper on.

Ken Fisher: Now, mind you, I'm kind of speaking with a little benefit of hindsight here, because so far in 2023, energy stocks have lagged. Energy stocks have lagged overall off the bottom in September, October of 2022, but generally, that's the way it works. The stock that did best in a bear market, which was energy, tend to do worse. Not the worst necessarily, but they tend to lag on the upside in a new bull market. Thank you for listening to me.

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A series of disclosures appears on screen: “Investing is Securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice or a reflection of the performance of fisher investment or its clients. Nothing herein is intended to be a recommendation or a forecast of market conditions. Rather it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. Not all past forecasts were, nor future forecasts may be, as accurate as those predicted herein.

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