By Jamie Chisholm
Critical information for the U.S. trading day
As European gas prices hit fresh record highs in response to Russia tightening the taps, the West recognizes the urgency for energy security that must, ultimately, be planet-friendly.
Consequently, a big feature of the legislative deal reached between Sen. Majority Leader Chuck Schumer and Sen. Joe Manchin, the West Virginia Democrat who’s often the swing voter in the upper chamber, is carbon reduction; which includes $60 billion for a clean energy manufacturing tax credit and a $30 billion production tax credit for wind and solar. Read what’s in and out of the package
It’s the kind of thinking that has helped bolster clean energy as a high-profile investment theme of late.
For example, while the S&P 500 is down 3.8% over the past three months, the three biggest U.S.-listed ETFs in the category, iShares Global Clean Energy (ICLN), Invesco Solar, (TAN) and the First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) are up 7.6 %, 20.2% and 9.1% respectively.
But how much of the recent performance is the result of market fashion and how much fundamentals, asks Jessica Rabe, co-founder of DataTrek Research.
She looked at each ETF’s top U.S. holdings — companies such as Enphase (ENPH), SolarEdge (SEDG), First Solar (FSLR), and Tesla (TSLA) — and analyzed whether their 2022 and 2023 analyst consensus earnings forecasts have gone up or down over the past 90 days.
“Essentially, what we want to know is if fundamentals for the space are improving or deteriorating,” says Rabe, and the bottom line is that most of the top three names in the ETFs have seen upside earnings revisions for this year and next over the last three months.
“With analysts growing more confident about renewable energy companies’ earnings potential this year and particularly in 2023, their outperformance versus the broader market over the past three months and year-to-date in some cases makes sense from a fundamental standpoint,” Rabe adds.
A note of caution, though. Rabe recognises that the ETFs highlighted peaked near the beginning of 2021, after the Democrats took control of Washington. The ETF’s price vacillations since then show a correlation to likely primacy of green policy, and it’s expected that Republicans are expected to take back control of Congress later this year.
“Policy uncertainty contributes to volatility in these names, however, and that is unlikely to change over the next 2-4 years. With mid-term U.S. elections just 106 days away, investors with an interest in the space may want to wait until the results are in before allocating fresh capital to this disruptive tech theme,” Rabe said, in a note written ahead of the Schumer-Manchin agreement.
Markets
Nasdaq 100 futures were leading the market lower, losing 1% to 12,494, while the broader S&P 500 future was off 0.4% to 4,007. The dollar index dipped 0.1% to 106.34 and gold was up 1.4% to $1,744 an ounce. U.S. crude oil futures rose 1.9% to $99.07 a barrel. The 10-year Treasury yield fell 1 basis points to 2.780%.
The buzz
The morning after the Federal Reserve’s latest 75 basis point rate hike and now attention inevitably turns to what happens next. Futures markets are pricing in a 70% chance the Fed will take things a bit easier at the next meeting in September, delivering just a 50 basis point increase in borrowing costs.
U.S. economic data on Thursday include second quarter GDP and initial jobless claims, both due 8.30 a.m. Eastern.
Shares in Meta (META), owner of Facebook, are sliding before the opening bell after the company said profits had declined for the third quarter in a row.
Teladoc (TDOC), former bull-market and lockdown darling, is slumping 23% in pre-market action after another massive impairment charge took the telehealth company’s losses for the first six months of the year to nearly $10 billion.
Barclays , the U.K. bank, has set aside GBP1.3 billion ($1.6 billion) to cover a trading blunder.
Other earnings reports include Mastercard (MA) and Merck (MRK) before the market opens. Apple (AAPL), Amazon (AMZN), Intel (INTC) and Roku (ROKU) step up to the plate after the closing bell.
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The chart
Japanese investors are selling foreign bonds at a record pace. Why? Bank of America analysts note that in the past, life assurance groups tended to increase foreign bond purchases when the 10-year U.S. Treasury yield, after hedging for foreign exchange risk, “exceeded the super-long JGB yield in a sustainable manner”. But “currently, the 30-year JGB yields 1.2%, while the 10y US Treasury yields -0.4% after FX hedges,” BofA says.
Top tickers
Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.
Ticker Security name TSLA Tesla GME GameStop META Meta Platforms AMC AMC Entertainment AAPL Apple AMZN Amazon NIO NIO XELA Exela Technologies MSFT Microsoft NVDA NVIDIA
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-Jamie Chisholm
(END) Dow Jones Newswires
07-28-22 0655ET
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