Trump v Harris: a climate stock investor's guide
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With the U.S. stock market soaring to new record highs all year, investors are suitably concerned about who wins the presidential election next month to see if the rally can be extended.
Both Vice President Kamala Harris and former president Donald Trump offer different enticements for investors, which we will explore, and both come with challenges.
The first thing investors need to remind themselves is that presidents are often the victims of natural or geopolitical circumstances that can affect the markets, such as the collapse of Lehman Brothers in 2007 or the European monetary crisis of 2011. Or Covid.
Another thing to remember is that the current bull market just finished its second year, or 24 months of gains. Average bull markets run between 24 months and 61 months, or five years.
So based on historical trends, the current bull market will run out sometime during the next president’s first term. The interest rate cycle, currently just starting downward after two years of rising rates, will not likely last for four years, so that is something else to consider. And Fed President Jerome Powell’s term ends in just two years, which throws another wrench into the mix.
The impact of global warming is also getting steadily worse, so President Joe Biden will be the last president who has the luxury of having to decide whether to deal with it or not. Whoever comes next won’t have a choice.
But presidential policies can and do play a role in affecting certain stock sectors, and that’s where investors should focus their attention as the Nov. 5 election nears. Trump is clearly an energy and defense play, as well as crypto, while Harris would be a boon for healthcare and clean tech stocks. Both will likely bolster the defense industry, given the state of things in the Middle East.
The distinctions will become even more pronounced over the next few weeks as the election nears. Already pundits on Wall Street are talking about the Trump trade vs. Harris trade. In the following two weeks, we will look at each candidate and what they bring to the table, what these trades are, and what savvy climate investors can expect starting Nov. 6. First up, and below, Trump.
Don’t forget to contact me directly if you have suggestions or ideas dcallaway@callawayclimateinsights.com.
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A silver lining in the new corporate climate storm — greenstalling
. . . . The trend in large companies delaying or abandoning their earlier climate pledges has become so alarming that it now has a name — greenstalling. Unlike greenwashing, where CEOs tried to spiff up their company’s green credentials with wild promises of net zero and decarbonization several years ago, greenstalling is simply a result of companies realizing it’s just too hard and delaying for a few years, writes Mark Hulbert. But there is a silver lining for investors. CEOs now realize what it will take to achieve a carbon balance and can start to send realistic targets. While that may take a lot longer to achieve, it’s more measurable and gives investors something credible with which to hold the companies accountable.
Thursday’s subscriber insights
Climate stocks and the Donald Trump market chaos theory
. . . . Former President Donald Trump likes to keep everybody guessing, and that’s just what U.S. stock market investors can expect from a second Trump presidency should he win on Nov. 5.
While it’s handy to point to the market gains in his first term from 2016 to 2020, the next four years will be a different era, with global warming, an AI arms race in tech, and an increasingly hostile China focused on building economic monopolies from South America to Europe, from clean energy to electric vehicles. All are new challenges from last time.
Much has been said about Trump’s potential for tearing down Biden’s efforts to build a clean tech economy, particularly investments from the Inflation Reduction Act, which has put tens of millions into U.S. manufacturers, many in red states.
To Trump, this is not a demolition derby so much as a rebranding exercise. While he won’t tolerate climate change or environmental, social and governance (ESG) jargon, he will certainly maintain and build on manufacturing gains and innovation. Just in the name of energy security, rather than climate mitigation. In his post-truth world, energy security IS dealing with climate change.
Stocks expected to perform well under a Trump presidency include the oil and gas companies, such as Exxon XOM 0.00%↑ and Chevron CVX 0.00%↑, the
defense companies, such as Northrop Grumman NOC 0.00%↑ and Lockheed Martin LMT 0.00%↑; the banks and tech companies looking for less regulation, perhaps JPMorgan Chase JPM 0.00%↑, Goldman Sachs GS 0.00%↑, and Apple AAPL 0.00%↑.
Finally, the traditional auto companies, such as Ford F 0.00%↑ and GM GM 0.00%↑, and don’t forget Tesla TSLA 0.00%↑ .
Clean tech will certainly be part of this mix as lower rates for at least the next few years benefit borrowing costs for young startups and equipment heavy solar and wind companies. In the name of energy security, everything goes. Think of GE Vernova GEV 0.00%↑ or Constellation Energy CEG 0.00%↑ . The smaller companies may suffer from cuts in government subsidies and borrowing programs, but energy is going to be an issue Trump cannot avoid.
In short, Trump can be expected to cause complete and utter chaos if he wins, all in the name of building his power. But he’s always been a fan of business, and fancies himself the ultimate entrepreneur. Those are two things that investors can definitely count on, if nothing else. . . .
Supreme Court grants Biden’s EPA plans a reprieve — for now
. . . . It’s somewhat ironic that the same fossil fuel companies who claim carbon capture and storage technologies will clean up all their harmful, toxic emissions once they are developed in several years’ time have demanded an emergency stay of Biden’s new EPA rules requiring that same clean up in several years because they say the technology has still not been “adequately demonstrated.”
The U.S. Supreme Court was right earlier this week to reject the stay request and allow the EPA’s rules to proceed pending lower court proceedings. The result of the ruling is that it will be at least two years before the issue hits the Supreme Court again. With the presidential election in less than three weeks, the whole issue could be moot, as they say, if Trump wins.
The ruling was hailed as a victory for Biden and the EPA, allowing the agency to proceed with plans to require gas and oil companies to capture all of their harmful greenhouse gas emissions by 2039, including beginning compliance practices next June. The justices argued this was more than enough time for the industry and there was no need to issue an emergency stay.
But it mostly was a technical procedure, and simply gave the justices a means to pass on another controversial decision ahead of the election. Still, it was notable that the fossil fuel industry showed its real hand on its carbon capture claims — something investors should remember going forward. . . .
Extreme weather will push millions to move; plus, flood warning for Miami
Watch the video: As the southern U.S. reels from back-to-back hurricanes, researchers estimate that millions will move away from areas with extreme weather in the coming decades. Senior research geographer Alexander de Sherbinin joins CBS News to discuss the research and which parts of the U.S. will likely be most affected.
Après le déluge: Flood warning for Miami
There may be no tropical storm or hurricane near South Florida this week, but streets in the region, and especially in Miami, are expected to be underwater this week. “The next few days mark one of the highest tides of the year, known as a king tide. That tide could be strengthened by offshore winds blowing more water ashore, plus a drizzle of rain on already-soggy ground,” reports the Miami Herald. Brian McNoldy, a senior research associate at the University of Miami’s Rosenstiel School of Marine, Atmospheric and Earth Science, wrote on X that the highest astronomical tide of the year is coming up tomorrow. “Tide forecasts show that Miami could experience record-breaking high tides from the 16th-23rd, so be prepared for a week of tidal flooding around every high tide.”
Latest findings: New research, studies and projects
Spillover effects of climate policies
While policies to combat climate change are designed to address a global problem, they are generally implemented at the national level, say the authors of an article titled, International Stock Markets’ Reactions to EU Climate Policy Shocks. From the abstract: Nevertheless, the impact of domestic climate policies may spill over internationally given countries’ economic and financial interdependence. “In this post, we quantify the spillover effects of climate policies on forward-looking asset prices globally by estimating the impact of carbon price shocks in the European Union’s Emissions Trading System (EU ETS) on stock prices across a broad set of country-industry pairs. In other words, we measure how asset markets evaluate the impact of changes to the carbon price on growth and profitability prospects of the firms.” Authors: Julian di Giovanni, Federal Reserve Banks - Federal Reserve Bank of New York; Centre for Economic Policy Research (CEPR); Galina Hale, University of California, Santa Cruz; Neel Lahiri, Independent; Anirban Sanyal, Government of India - Department of Statistical Analysis and Computer Services; UCSC.
More of the latest research:
Words to live by . . . .
“What changed in the United States with Hurricane Katrina was a feeling that we have entered a period of consequences.” — Al Gore.