We share our latest observations on global asset markets in relation to T8 Energy Vision

All movements are expressed in United States (US) dollar terms, unless otherwise stated.

Key points

• T8 Energy Vision outperformed global equities and its benchmark in the challenging market environment.
• Global equities continued their decline on increasing worries about the health of the US economy and concerns about a potential global trade conflict.
• Looking beyond the short term noise, in our view, booming electricity demand represents a compelling opportunity for investors in equities. Driven by data centres (a secular growth trend) and the electrification of road transport (a structural shift), the winners will include energy generation, grid infrastructure, energy storage and electrification (as well as their direct supply chains, including critical minerals).
• Falling US interest rates (100 basis points of cuts so far in this easing cycle and the market is pricing in three cuts during 2025, as of the end of March) are yet to have a material impact on the electric energy sector and its supply chains (which have displayed very high sensitivity to interest rates, historically). We believe that this dislocation is explained by recent policy uncertainty (especially up to and following the US election) which has polarised expectations in terms of the outlook for different forms of energy generation and temporarily obscured the impact of this positive cyclical catalyst.
• Tariffs and trade wars do not change our positive outlook for energy stocks driven by structural, secular and cyclical tailwinds all converging. We believe this period of market weakness represents a good entry point.

Market update

Global equities continued their decline on increasing worries about the health of the US economy and concerns about a potential global trade conflict following President Trump’s announcement of reciprocal tariffs on major trading partners. T8 Energy Vision outperformed global equities and its benchmark in the challenging market environment.

Macroeconomic data

The US consumer is continuing to weaken

Low consumer confidence and weak consumer spending (you will recall that consumer spending accounts for nearly 70% of US economic activity) perpetuated the market’s concerns about the US economy. Personal spending at 0.4% month-over-month came in weaker than expectations for 0.5% and consumer confidence slipped further to 92.9 from the prior reading of 98.3 (you will recall that readings of less than 100 indicate a more pessimistic outlook and month-over-month changes of more than 5 points are considered significant).

The magnitude of anticipated US economic slowdown is increasing

The Federal Open Market Committee lowered its US gross domestic product (GDP) forecast for the full year 2025 to growth of 1.7% in nominal terms (from 2.1% in December), while the Federal Reserve Bank of Atlanta has continued to downgrade its outlook for US GDP, forecasting a decline of 2.8% in real terms quarter-over-quarter annualised for the first quarter of this year (this is relative to the latest estimate of 2.4% growth for the last quarter of 2024).

The outlook for interest rate cuts is increasing notwithstanding elevated inflation

The market is now pricing in three interest rate cuts during 2025 (relative to two last month) notwithstanding inflation measures rising from an elevated level and unemployment remaining low by historical standards.

The Core Personal Consumption Expenditures Price Index (Core PCE), rose to 2.8% (from the prior month’s upwardly revised 2.7%), 10 basis points above market expectations.

While the labour market remains more or less solid with unemployment at 4.1% (an increase of 10 basis points on the prior month), the Federal Open Market Committee updated its unemployment forecast to 4.4% (from 4.3%) for the end of 2025. The economy adding 151 thousand jobs during February (you will recall that 100 to 150 thousand is considered to have a more or less neutral impact on unemployment), was fewer than the 160 thousand expected.

We note an increasing number of market commentators forecasting economic stagflation (defined as the combination of high inflation, high unemployment, and stagnant or slow economic growth). We observe that the solid US labour market remains the only factor standing between the US and this particularly undesirable condition which, should it eventuate, would be a major headwind for risk appetite but likely to be very good for safe havens such as electric utilities and gold.

Market impacts

While the yield on 10-year US Treasuries ended the month unchanged (at 4.21%), the yield curve steepened, reflecting increasing expectations for interest rate cuts and rising inflation risks. The Global Aggregate Bond Index (+0.6%) benefitted from aversion to equity risk.

The US dollar weakened appreciably (US Dollar Index -3.2% to 104) driven by the weak US economic data and increasing expectations for interest rate cuts.

Commodities were strong, led by the precious such as gold (+9.3%) and silver (+9.4%). Copper’s strong performance continued and its strength in the US (COMEX copper +10.7%) was notable relative to the global copper benchmark (LME copper +3.4%), which reflected the anticipation of US tariffs.

Global equities (-4.6%) were weak across the globe with mainland China (Shanghai +0.4%) and Hong Kong (+0.8%) rare exceptions.

The rout in mega-cap US technology stocks accelerated (Magnificent 7 Index -10.2%) while Chinese technology stocks continued moving in the opposite direction (albeit without the magnitude of the prior month) with BYD (+5.7%), Tencent (+3.8%) and Alibaba (+0.4%) posting gains. The contrasting performance was attributed to a continuation of the fallout from the DeepSeek shock in late January which was the first seed of doubt in what had been a prevailing belief that US technology stocks would be perpetually dominant (US exceptionalism) – we published a report covering this issue and our comments remain relevant.

This is a key issue for investors to monitor on the basis that these stocks still account for nearly 30% of the S&P 500’s market capitalisation and US stocks account for over 70% of global equities indices (i.e. MSCI World Index), while Chinese stocks are under-represented. We also believe that the mega-cap US technology stocks are losing (or have lost) their safe haven status, which has significant implications for the risk profile of global equity markets and should drive investors to diversify.

At sector level, once again consumer discretionary stocks (-9.0%), information technology (-8.9%) and communication services (-8.4%) were the worst performers. Energy (+3.7%), driven by a stronger oil price (+2.1%) and safe haven, utilities (+0.1%) were the only sectors to finish higher on the prior month given the low equity risk appetite.

At factor level, value stocks (-3.0%) outperformed growth stocks (-8.5%) and large caps (-5.9%) outperformed small caps (-7.7%).

Future energy stocks

The Clean Energy Index (-4.2%) fell more or less in line with global equities.

Within the benchmark, the biggest segment level detractors were energy generation (-84 basis points) and energy storage (-138 basis points). The bright spot was the electric utilities sector (107 basis points) within the energy generation segment, although its positive contribution outweighed by detractors in the balance of the segment.

While the perception remains that renewables are under pressure and the future of electricity will be all nuclear and gas-fired (Donald Trump’s ‘drill, baby, drill’ comments), our research indicates that an ‘all nuclear and gas’ scenario is implausible. We refer you to a short summary of our expectations for the future energy mix in the US.

Outlook

Structural, secular and cyclical tailwinds are converging for energy stocks.

Global energy demand growth is accelerating – especially in advanced economies. In 2024, demand grew at roughly double the 10-year average. Electricity is booming, driven by data centres (a secular growth trend) and the electrification of road transport (a structural shift). The winners in this boom will include energy generation, grid infrastructure, energy storage and electrification (as well as their direct supply chains, including critical minerals).

Falling US interest rates (100 basis points of cuts so far) is a cyclical tailwind which is yet to have a material impact on these industries (which have historically displayed very high sensitivity to interest rates). We believe the lag is explained by recent policy uncertainty (especially following the US election) which has temporarily obscured the impact of this positive catalyst.