Economic and clean energy derailment, plus a bear market hibernation. The five things for investors to consider – Outlook Q3 (2022)

Summary: We think it is vital to reflect, assess and adjust your investments, so you too are not caught out as the investment tide changes. Given we see great risk of a global economic derailment, rising financial strain and some countries putting their clean energy targets on ice, we share the five things’ investors need to consider in this new half year.

Warren Buffett once famously said: “only when the tide goes out do you discover who's been swimming naked”. As tides change, with a new half year rolling in, we think it is vital to reflect, assess and adjust the portfolio, to weather the economic storm ahead of us. Given we see great risk of a global economic derailment, rising financial strain and some countries putting their clean energy targets on ice, we share the five things that investors must consider in the final half of the year.

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The economy is at risk of derailment, putting banks & consumer spending earnings on the chopping block.

Following runaway record inflation, central banks are aggressively rising rates, at a time when consumer confidence is headed for lower ground. US confidence is already at a record low, UK consumer confidence nears 50 year lows, Australian consumer confidence faces downside and business confidence is next. As the US, UK, and Australia make the majority of GPD from the consumer, we question what if consumption remains capped in this new rate hike cycle? Things could get uglier till consumer confidence picks up again. Think about this, the S&P500 Consumer Discretionary sector down 36% from its high; stocks like Nike are down 40%, Target is down 50%, but they face further pressure, unless earnings rise. And how is that going to happen in Q3?

Meanwhile, lending will continue to tighten, bad debts and defaults will likely rise and this could trigger property prices to fall over 20%, which will unwind the ‘wealth effect’, and further restrict consumption. Plus we think it will likely squeeze banks profit margins; when lending has already fallen from its 2021 high. Now think about this; a AUD$700k mortgage payment rises by $850 per month, if rates jump to over 3%. How many households have that buffer? Thus, we think banks shares face further selling unless something changes. Shares in the US’ biggest lenders like JP Morgan are down 34% from last years high, Bank of America shares are down 36% from Jan.

Coal & fossil fuel demand to rise with Governments forced to ramp up coal; sending clean energy commodities off the rails

Developed countries like Germany and Australia have been forced to put their clean energy targets on ice to prioritise critical short term energy demands. Companies are being pressured to the do the same; amid a lack of supply which is causing blackouts in Australia; with the energy operator and minister calling on resources urgently. Over in Germany they’ll fire up coal power stations again, in a bid to rid the country of Russian gas imports. They admit it’s “bitter, but simply necessary in this situation to lower (Russian) gas usage”. Companies like BHP are responding to, by scrapping the sale of their coal business and vowing to operate coal mining till 2030 to help fill supply gaps.

Although the clean energy push goes on ice, Australia anticipates by 2025, some retail energy demands will be met by renewables by then.

However, we anticipate an earnings growth slow down as well as selling, and profit-taking in clean energy stocks (lithium, hydrogen, uranium etc). Some equities to keep on our radar may include;

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  • in hydrogen; Germany’s SFC Energy in hydrogen, which makes 10% of revenue from Germany and the majority from Europe. France’s McPhy Energy, making almost all of their revenue from Europe. Also keep an eye on fuel cell giant Plug Power who have global clients.
  • In lithium, the world’s biggest lithium company Albemarle, as well as Livent, listed on the NYSE. On the ASX; Pilbara Minerals and Allkem. In Asia; Genfeng, and Tianqi.

Inversely, we anticipate higher demand and potentially even government support in coal companies, given the shift. Some companies to watch may include

  • Global diversified commodity giant BHP, who makes the majority of revue from China (65%), 5% from Australia and about 2% from Europe.
  • Australia’s Whitehaven Coal and New Hope Coal, who both make the majority of their coal revenue from Australia. As well as Coronado Global Resources, who make most of their earnings from Australia, followed by the US.
  • America’s Tech Resources, who makes over 5% of revenue from Germany, while most earnings are from Asia.

The commodity super cycle is in hibernation; but beware of industrial commodity selling and slower earnings growth

The commodity super cycle is not dead, but in hibernation. Industrial commodities which include oil, gas, iron ore, other metals, as well as grain and fertilizers- have been star performers on the New York, European, Australian and Brazilian stock markets in 2022; with many companies seeing record revenue and profits, supporting share price growth. But many of these companies face haircuts, with forward earnings growth to likely fall as global growth in question, demand destruction kicking from higher rates. Plus, China shows no signs of surfacing from lockdown till 2023. This also hurts industrial metal commodity economies too- Australia and Brazil- pressuring their trade balances. Meanwhile, amid tighter liquidity smaller commodity companies will also be squeezed.

So when will the commodity metal market turn back up? We don’t have the answer. But looking out for the signs is key; we need to have consistent good news from China (and for restrictions to ease ahead plus signs of industrial activity rising consistently). Then commodity markets will likely move back to higher levels.

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But for now, industrial commodities might go into hibernation. Stocks to watch;

  • In the oil and gas sector include; in NY Occidental Petroleum, Valero Energy, Marathon Oil, APA Corp, Exxon Mobile, Coterra Energy, Hess Energy, Halliburton, Marathon Petroleum all of which are this years best performers on the NYSE up 92-36% YTD. On the ASX; Woodside Petroleum, Beach Energy, Worley Parsons
  • In industrial metal commodities; On the ASX; there is Rio Tinto, South32, Oz Minerals.
  • In the Agriculture sector; on the ASX; Graincorp, Elders, Costa Group, Nufarm, Incitec Pivot. On the NYSE Archer-Daniels, Mosaic, CF Industries.

Gold stocks supported higher

Since the 1970s gold stocks have outperformed the benchmark indices across every Fed rate hike cycle. And as Ole Hansen says; we see gold hitting a fresh record in the second half. So it’s worth keeping gold stocks on your radar and considering adding them to your portfolio for downside protection.

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Expect a slow L-shape market recovery. Focusing on quality companies with rising earnings can help you outperform

As you may know, Saxo’s long-term view on markets is bearish and we think the market is pressured downward. If you reflect on the prior bear markets (1970s, 2000 and 2007), they typically took 4 years to recover. But the key to outperforming those markets and this one, is to identify the right asset classes and companies that can outpace the slow recovery. Those companies will likely be in energy and also be companies that can pay dividends, as they have strong earnings and cash flow growth, which is vital to sustaining the pressure of higher rates, wage inflation and other inflationary pressures. Focusing on quality is key.

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FAQs

What investments do well in a bear market? ›

Dividend-paying stocks. Even if stock prices aren't going up, many investors still want to get paid in the form of dividends. That's why companies that pay higher-than-average dividends will be appealing to investors during bear markets.

How does bear market affect the economy? ›

Unemployment starts to rise.

A bear market usually means the economy is slowing down—which also means businesses are less likely to hire new people or, even worse, forced to let people go.

What are bear market strategies? ›

A Bear Market Strategy selects safe harbor investments during a market crash. Wall Street uses the terms risk-on / risk-off to describe a move to riskier investments with potentially higher yields during bull markets and a move to safer investments with typically lower yields during bear markets.

Are we still in a bear market 2022? ›

With U.S. stocks down about 19% and bonds down 15% so far in 2022, this search for a seemingly elusive bottom can be exhausting. But we continue to encourage investors to remain patient and avoid chasing index-level bear-market rallies.

What are two characteristics of a bear market? ›

Bear markets generally indicate low investor confidence and a sluggish economy.
...
The main characteristics of a bear market include:
  • Investors turn pessimistic. ...
  • Stock values decline. ...
  • Investor sentiment turns negative. ...
  • Companies make less money.
14 Jun 2022

What is the prediction for the stock market in 2022? ›

Economic uncertainty may have peaked in the first half of 2022, but it remains high. Stocks are likely to continue to feel the weight of Federal Reserve policy tightening, shrinking market liquidity and slower economic growth.

How do I protect my investments in a bear market? ›

7 Investing Strategies to Prepare for Bear Markets
  1. Know that you have the resources to weather a crisis. ...
  2. Match your money to your goals. ...
  3. Remember: Downturns don't last. ...
  4. Keep your portfolio diversified. ...
  5. Don't miss out on market rebounds. ...
  6. Include cash in your kit. ...
  7. Find a financial professional you can count on.

How long will the bear market last 2022? ›

The bear market in the S&P 500 was confirmed on June 13th 2022, but the market began its slide on January 3rd 2022. With this date as the start of the current official bear market, the average bear market of 289 days means that it would finish on 19th October 2022.

How long is the Crypto bear market going to last? ›

I cover fintech, crypto and investing. New! Follow this author to stay notified about their latest stories.

Where should I invest now? ›

12 best investments right now
  • High-yield savings accounts.
  • Certificates of deposit (CDs)
  • Money market funds.
  • Government bonds.
  • Corporate bonds.
  • Mutual funds.
  • Index funds.
  • Exchange-traded funds (ETFs)
27 Sept 2022

How do you survive a bear market? ›

Here are eight tips for helping you survive a bear market:
  1. Turn off the noise. ...
  2. Live your life. ...
  3. Understand basis point performance reporting. ...
  4. Understand investment risk. ...
  5. Examine your portfolio's strategies. ...
  6. Stick to the (financial) plan. ...
  7. Remember that this bear market, too, will pass.
3 Aug 2022

What should I invest in during a market crash? ›

Bonds are considered safe investments because they are not as volatile as stocks. Open and fund a brokerage account at and trade commission-free.

How do people get rich in a bear market? ›

There are many ways to profit in both bear and bull markets. The key to success is matching the right investment tools to each market and using them to their full advantage. Short selling, put options, and short or inverse ETFs are a few bear market investments that allow investors to profit from market weakness.

What smart investors do in bear market? ›

To summarize, bear markets are a good time to buy stocks, but not every beaten-down stock is worth buying. Investors should look for businesses with strong prospects for future growth and some type of competitive differentiation.

Will there be a market crash in 2023? ›

“While it may differ by local markets, a broad market crash is unlikely,” says Rob Cook, vice president of marketing at Discover Home Loans. Some experts expect demand to pick up again soon, particularly after the enormous rent increases many people saw in 2022.

Should I pull my money out of the stock market? ›

Although the stock market produces volatile returns, it has a long history of outpacing inflation in the long run. So, if the money you have invested in the stock market isn't going to be used in the next few years, it's likely safer to keep your money invested than to take it out.

Will stock market recover in 2023? ›

Based on their mean predictions, they expect the S&P 500 to gain 15% through June 30, 2023, and 22% by the end of next year. Bullish investors see the Dow Jones Industrial Average adding 19% through the end of 2023, and the Nasdaq Composite picking up 30% by then.

Why is it called a bear market? ›

Believe it or not, the term "bear market" originates with pioneer bearskin traders. The country's early traders would sell skins they'd not yet received – or paid for. Because the traders hoped to buy the fur from trappers at a lower price than what they'd sold it for, "bears" became synonymous with a declining market.

Should you invest during a bear market? ›

Don't try to catch the bottom: Trying to time the market is generally a losing battle. One thing to keep in mind during bear markets is that you aren't going to invest at the bottom. Buy stocks because you want to own the business for the long term, even if the share price goes down a little more after you buy.

What are the characteristics of a bear market condition and what are the causes? ›

A bear market occurs when a market experiences prolonged price declines. Factors such as a weak or slowing economy or shocks like pandemics or war can all contribute to a bear market. In contrast, a bull market is when stocks are rising – or expected to rise – over a prolonged period.

› Markets › Stock Markets ›

A bear market is when a market experiences prolonged price declines. It typically describes a condition in which securities prices fall 20% or more from recent ...
A bear market is a period of falling stock prices, typically by 20% or more. During this time, investor confidence is low, and investing can be risky.

What Is a Bear Market?

https://www.thebalancemoney.com › ... › Economic Terms
https://www.thebalancemoney.com › ... › Economic Terms
Definition and Examples of a Bear Market. Stock prices fall due to the influence of investor sentiment, economic conditions, interest rates, and many other fact...

What are the 5 stages of a bear market? ›

That's not Wall Street's current mood. Bear-market psychology follows a progression that is similar to what psychologists call the five stages of grief—denial, anger, bargaining, depression, and acceptance.

What happens in a bear market? ›

What Is a Bear Market? A bear market is when a market experiences prolonged price declines. It typically describes a condition in which securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment.

Does a bear market mean recession? ›

A bear market doesn't necessarily indicate an economic recession. There have been 26 bear markets since 1929, but only 15 recessions during that time. Bear markets often go hand in hand with a slowing economy, but a declining market doesn't necessarily mean a recession is looming.

Why is it called a bear market? ›

Believe it or not, the term "bear market" originates with pioneer bearskin traders. The country's early traders would sell skins they'd not yet received – or paid for. Because the traders hoped to buy the fur from trappers at a lower price than what they'd sold it for, "bears" became synonymous with a declining market.

How long will the bear market last 2022? ›

The bear market in the S&P 500 was confirmed on June 13th 2022, but the market began its slide on January 3rd 2022. With this date as the start of the current official bear market, the average bear market of 289 days means that it would finish on 19th October 2022.

What are the stages of a market crash? ›

Bubbles are deceptive and unpredictable, but understanding the five stages they characteristically go through can help investors prepare for them. The five steps in the lifecycle of a bubble are displacement, boom, euphoria, profit-taking, and panic.

Should you invest during a bear market? ›

Don't try to catch the bottom: Trying to time the market is generally a losing battle. One thing to keep in mind during bear markets is that you aren't going to invest at the bottom. Buy stocks because you want to own the business for the long term, even if the share price goes down a little more after you buy.

How long is the Crypto bear market going to last? ›

I cover fintech, crypto and investing. New! Follow this author to stay notified about their latest stories.

Are we in a bear or bull market 2022? ›

With the S&P 500 (. SPX) and Nasdaq (. IXIC) already down some 23% and 32%, respectively, from their record highs, confirmation the Dow is also in a bear market is just the latest milestone in 2022's market turmoil.

Where should I invest now? ›

12 best investments right now
  • High-yield savings accounts.
  • Certificates of deposit (CDs)
  • Money market funds.
  • Government bonds.
  • Corporate bonds.
  • Mutual funds.
  • Index funds.
  • Exchange-traded funds (ETFs)
27 Sept 2022

What happens during a recession 2022? ›

A recession causes the stock market to drop

Consumers will decrease their spending, putting less money into the economy, which means that companies will report lower earnings. To make matters worse, some investors will liquidate their stocks in response to recession fears, rising inflation and interest rate hikes.

What smart investors do in bear market? ›

To summarize, bear markets are a good time to buy stocks, but not every beaten-down stock is worth buying. Investors should look for businesses with strong prospects for future growth and some type of competitive differentiation.

How long does it take to recover from bear market? ›

Bear market recovery time, adjusted for inflation, and including the down leg measures: On average: four years and four months. Shortest: six months (Coronavirus crash) Longest: 13 years (Dotcom bust)

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