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

• The key factor influencing energy markets in November was the US election.
• Negative sentiment in the majority of the electric energy sector was likely related to the perception 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.
• The US has increasing demand for electricity for the first time in 20 years driven by data centres and needs new electricity generation capacity very quickly.
• We have a very optimistic outlook for electricity demand and all electricity generation technologies, their supply chains and associated infrastructure.
• We have upgraded our outlook for electricity demand growth following Trump’s election victory and the Republican sweep.
• The wall-to-wall coverage of the election overshadowed everything else, including a US interest rate cut.
• Falling interest rates are yet to have a material impact on our focus area of the electric energy sector and its supply chains (which have historically displayed very high sensitivity to interest rates). We believe that this lag will prove temporary.

Market update

Macroeconomic data

The key factor influencing global markets in November was the US election. While the election of Donald Trump wasn’t necessarily surprising (given close polling), the Republican sweep of the Senate alongside the House of Representatives was a much stronger result (and mandate) for the Republicans than markets had expected.

We believe this stronger policy mandate, in the context of President-elect Trump’s relatively extreme rhetoric, rattled markets and drove the powerful intramonth moves in US Treasury yields (10-year US Treasuries spiked by 17 basis points to 4.45%) and the US dollar (US Dollar Index +3.4% to 108). Scott Bessent’s nomination as Treasury Secretary marked a turning point, reassuring markets on the basis that:

• Mr Bessent has extensive experience in financial markets and is highly regarded by Wall Street;
• he is perceived as a moderate who will bring a balanced approach to policies such as tariffs and tax cuts (tempering fears of overly inflationary policies); and
• markets have confidence in his fiscally conservative proposal of ‘3-3-3 economic strategy’, aiming for 3% annual economic growth, increased domestic oil production, and reduced federal deficit (and therefore also beginning to address concerns about federal debt).

These developments suggest that notwithstanding some relatively extreme rhetoric from President-elect Trump, the reality is likely to be more balanced.

The wall-to-wall coverage of the election overshadowed everything else, including a US interest rate cut (a cut of 25-basis points taking the target rate to 4.50-4.75%). The interest rate cut would indicate that the Federal Reserve considers inflation to be remaining on a downward trend, headed back towards target levels. Inflation and unemployment data reported during the month was in line with consensus expectations with the Core Personal Consumption Expenditures Price Index (Core PCE) at 2.8% and unemployment steady at 4.1%.

At the end of November, markets were pricing in a two-thirds chance of another 25-basis point interest rate cut at the December meeting, up from just over 50% at the end of October.

Market impacts

Treasury yields reversed their intramonth spike following the nomination of Scott Bessent. 2-year, 5-year and 10-year US Treasuries ended the month at 4.15%, 4.05% and 4.17% or 2, 11 and 12 basis points lower month-over-month. The Global Aggregate Bond Index (+0.3%) was more or less unchanged. The US dollar followed a similar trajectory to treasuries albeit ending November higher month-over-month (US Dollar Index +1.7%).

Global equities (+4.5%) had a strong month driven by the US stock market (S&P 500 +5.7%) which continued to eclipse all-time highs. Elsewhere the trend was mixed with moderately stronger markets in Europe (Germany +2.9% and United Kingdom +2.2%) and weaker markets in Asia (Hong Kong -4.4%, Korea -3.9% and Japan -2.2%).

The US stock market was once again led by the mega-cap technology stocks (the Magnificent Seven Index +9.4%), this time driven by enormous contributions from Tesla (+38.1%) and Amazon (+11.5%). Below the surface at sector level, consumer discretionary (+13.2%), financials (+10.2%) and industrials (+7.3%) were the best performers, while health care (+0.1%) and materials (+1.4%) were the weakest performers.

At factor level, small caps (+10.8%) outperformed large caps (+6.3%). The outperformance of small caps was likely related to their greater sensitivity to interest rates following the rate cut during the month and increased expectations for an interest rate cut in December.

Future energy stocks

While the Clean Energy Index (+1.0%) finished the month higher, below the surface the key driver appears to have been some significant moves in the electric vertical take-off and landing (eVTOL) segment of the Electric Vehicles industry with Archer Aviation (+203.8%) and Joby Aviation (+86.5%) the most notable. Both are heavily shorted by the market and appear to have benefitted from short covering following some positive milestones in what nevertheless appears likely to be a long path to commercialisation and profitability.

Segments accounting for over half of the index such as solar (-5.9%, detracting 127 basis points), clean utilities (-3.9%, detracting 108 basis points) and wind (-13.1%, detracting 104 basis points) all declined which was more reflective of sentiment within the sector. The performance of these segments was likely related to the perception 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, and we have published a short summary of our expectations for the future energy mix in the US.

Looking ahead, we have a very optimistic outlook for electricity demand (the US has increasing demand for electricity for the first time in 20 years driven by data centres) and all electricity generation technologies, their supply chains and associated infrastructure. We have upgraded our outlook for electricity demand growth following Trump’s election victory and the Republican sweep.

Falling interest rates are yet to have a material impact on our focus area of the electric energy sector and its supply chains (which have historically displayed very high sensitivity to interest rates). We believe that this is a lag that is likely due to recent policy uncertainty (especially up to and following the US election) which has temporarily obscured the impact of this significantly positive catalyst.