It Doesn’t Matter What the Market Does

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It Doesn’t Matter What the Market Does

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Depending upon your generation, inflation is like Bela Lugosi’s “Dracula” from 1931 or Victor Salva’s “Creeper” from 2001. It is the sinister figure lurking in the shadows, continuously stalking its victims.

Like Dracula and the Creeper, inflation is terrifying – both because it is fatal to stock-price gains and because we never know exactly when it will strike.

As long as we sense its presence, there is no peace. After all, we may be next.

The anxiety is exhausting… and paralyzing… and we’re all ready to get back to making money – consistently.

Here’s the good news: There is an end in sight, as today’s better-than-expected inflation reading suggests. Inflation continues to moderate – falling from last June’s reading of 9.1% to today’s reading of 5.0%.

That’s the sort of progress that will bring an end to the Fed’s rate-hike cycle and remove a major headwind to the stock market.

But, as the cliché goes – we trade and invest in a market of stocks. Not a stock market.

That simply means that while the market might continue to spit out paltry returns over the next year or two, that doesn’t mean that individual stocks won’t double, triple, or even quadruple their value.

Like stocks in the next major megatrend…


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Sometimes the Answer is Right in Front of Us

If there is one indisputable conclusion we can draw from the market’s action this year (and the year before… and the year before that…), it’s that technology stocks are getting hammered while energy stocks power higher.

Here’s the proof…

The S&P 500 Energy Sector (purple line) has crushed all three major indexes since Jan. 2021.

And with a triple-digit gain only moving higher, one may think that it must be too late to get in now, right?

I sure don’t think so.

Energy has broadened far beyond the stodgy, oil-centric sector of old; energy is now a spectrum, encapsulating household names like Exxon Mobil Corp. (XOM) to newer-to-the-scene companies like Liberty Energy Inc (LBRT).

And the newer, “greener” side of the spectrum is where I’ve set my sights.

This side of the spectrum, though speculative, is so complex that even getting to a functional solar panel, wind turbine, lithium-ion battery, or EV-charging unit, requires vastly greater quantities of battery metals than the legacy technologies they aim to replace.

Here’s what I mean…

  • The average solar power project, for example, requires about five times more copper per megawatt (MW) of capacity than a conventional fossil fuel plant. Offshore wind farms demand about 10 times more.
  • In raw numbers, a single 13-MW offshore wind turbine requires a stunning 275,000 pounds of copper. That’s about how much copper you’d find in 600 average American homes.
  • The average plug-in EV requires about 200 pounds of copper, which is nearly four times what a comparable internal combustion vehicle requires. Depending on the exact battery chemistry, these vehicles also contain about 50 pounds of nickel, along with meaningful quantities of manganese, aluminum, lithium, and graphite.

Therefore, as EVs, solar panels, and windmills spread out across the globe, metal demand from these technologies will explode.

To get a better feel for the scope of the up-and-coming “new energy” rush, let’s take a peek at some of the newest growth forecasts for the major renewable energy technologies…

Renewable Energy Catches Fire

The latest forecast from BNEF, published earlier this year, boosts the estimates for 2023 and 2030 by 34% and 53%, respectively.

If this updated forecast comes to pass, the world will install twice as much solar power capacity this year as it did in 2020.

a chart showing the newest forecast for annual global solar installations (in gigawatts) from BNEF; the results are substantially higher than the late-2020 forecast BNEF published

The wind industry is not booming as spectacularly as solar, but it is picking up momentum.

Global wind installations in 2022 topped 100 GW for the first time ever, and the Global Wind Energy Council expects more than 110 GW of new installations each year until 2026.

BNEF holds a similarly optimistic outlook. Its newest forecast calls for annual wind capacity installations to trend toward 160 GW by 2030. Incidentally, that forecast is significantly higher than what the BNEF team was expecting one year ago.

chart showing the newest forecast for annual global wind installations (in gigwatts) from BNEF; the results are much higher than BNEF's late-2021 forecast

Ditto the predictions for global EV sales.

Year after year, industry experts have been upping their growth projections. Recent forecasts from the Boston Consulting Group (BCG) provide an enlightening case study.

From 2018 to 2022, the esteemed consulting firm issued a series of forecasts that predicted global EV market share in 2030. The BCG’s 2018 forecast, for example, predicted EVs would capture a 21% share of global car sales by 2030.

But over the course of the next four years, the BCG issued successive revisions that ultimately boosted its forecast for 2030 EV market share to 53% – or more than double what the research group had predicted in 2018.

These growth numbers are rocketing higher because the world’s auto manufacturers are finally transforming their EV dreams into reality.

Tesla Inc. (TSLA) no longer has the EV market to itself. Around the world, dozens of new EV models are hitting showroom floors every year.

Clearly, the adoption rates for EVs and other leading renewable energy technologies will continue to accelerate. That’s the history of adoption rates for new technologies.

Summing Up

As we talked about today, it doesn’t really matter what the stock market as a whole does… it matters what individual stocks in high-octane sectors do.

The market may very well pull back more… or not. But if it does, the trend is what matters. There’s nothing that can stop powerful megatrends – not inflation, not the Fed, nothing.

And we’ll be ready to take on the next one as it comes.

Regards,

Eric

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Article printed from InvestorPlace Media, https://investorplace.com/smartmoney/2023/04/it-doesnt-matter-what-the-market-does/.

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