Why the ‘renewable energy surge’ may continue. Moreover, large ETFs in savings accounts are losing their attractiveness

The troubled clean energy sector is finally showing signs of life, as Citi analyst Vikram Bagri discusses in a new research report: The unexpected rise of renewable energy. Bagri sees four reasons why growth may continue: short-term demand, demand for data centers, the rise of solar energy and new Chinese regulations.

Using the BMO Clean Energy ETF (ZCLN-T) as a proxy, the sector’s performance has been dismal in recent years. From mid-January 2023 to the end of April this year, the ETF fell 37%. However, in the short period since then, the fund has increased by 13.5%.

Bagri believes short covering is the main catalyst for the recent rally. There have been significant shortfalls in this sector as progress towards decarbonization has been slower than many expected. Research reports highlighting the huge demand for electricity due to the development of artificial intelligence (AI) and the commitment of AI providers to meet this demand through renewable energy have resulted in a rush to address related shortcomings. According to the analyst, it is possible that speculative funds that caused a short position on the stock exchanges will now move to long positions.

The expansion of artificial intelligence is one reason Citi expects to continue strengthening renewable energy stocks. Microsoft CEO Satya Nadella announced last week that by 2025, 100% of the company’s AI-related data center energy needs will be met by renewable energy. Microsoft will be among the five biggest players in the artificial intelligence revolution.

The U.S. Independent System Operators (ISO), the regional organizations that coordinate power transmission, estimate a large increase in planned solar energy production. Mr. Bagri reports that U.S. solar pipeline capacity has increased by one terawatt to 2.3 terawatts: “It therefore appears that solar power will play a key role in the construction of data centers in the U.S., and investors are looking to gain exposure to this topic through renewable stocks energy sources. “

China’s solar industry is discussing reforms to manage aggregate capacity and establish intellectual property protections. These measures will help prevent global overcapacity and protect the pricing power of Western solar equipment suppliers, providing a further boost to renewable energy stocks in developed countries.

U.S. natural gas prices are also supporting demand for renewable energy after recently increasing by 40%. American households that rely on natural gas now have greater incentives to switch to renewable energy sources.

— Scott Barlow, Globe and Mail market strategist

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Run down

Why it’s time to join the crowds leaving their old favorite parking spot to invest their cash

Exchange-traded funds, which hold their assets in savings accounts at large banks, have enjoyed tremendous success when interest rates have risen because their yields are directly impacted by the Bank of Canada overnight rate. Additionally, during uncertain times, these ETFs provided a refuge from stock and bond market turmoil. Currently, strong stock performance and expectations for better bond returns are encouraging investors to take more risk, reports Rob Carrick.

The little-known sub-index that beats the TSX Composite

Many people have never heard of the S&P/TSX Completion Index, and no, it is not composed of companies that can boast of completing their projects on time. Rather, it includes stocks from the Composite Index that are not included in the S&P/TSX 60 Large Cap Index. As Gordon Pape reports, it has outperformed the Composite this year, and is followed by the exchange-traded fund.

Inflation data and the presidential debate may derail the US summer rally

Summer has historically been the slowest season for U.S. stocks. The benchmark S&P 500 index rose 56 percent between June and August. However, this summer will bring additional difficulties due to continued uncertainty about the timing of interest rate cuts and uncertainties surrounding the US presidential election, which are likely to cause some volatility. Reuters’ David Randall looks ahead to what could be a challenging summer.

See also: The growing US debt scared some bond investors before the November elections

Bet on copper paid off. But what can investors expect now that prices are soaring?

The argument in favor of copper was simple when the commodity was in distress last year: copper is integral to many modern fields, from artificial intelligence to electrification to green energy, so it was only a matter of time before the investment paid off. But with copper prices soaring this year, can investors hope to squeeze more out of the currently hot sector? David Berman shares his thoughts.

Speculative mania on the stock market has returned. This won’t end well

Investing with memes, after a break of several years, is back in fashion, driven by unprofessional investors. Dr. George Athanassakos believes that retail investors will become poorer because of this. Because for him, investing is a business in which the winner is the one who has the most patience, discipline and long-term perspective.

Other (for subscribers)

The most oversold and overbought stocks on the TSX

Monday’s analyst increases and cuts

Monday’s Insider Report: CEO Sells More than $1.7M of Copper Stock, Record High

What investors expect from the election results in India

Globus advisor

Three big mistakes advisors make when including alternative assets in client portfolios

New target-maturity bond ETFs confirm investor demand for stability amid an uncertain interest rate outlook

Are you a financial advisor? Sign up for Globe Advisor (www.globeadvisor.com) to receive free daily and weekly newsletters, in-depth news and industry analysis.

Ask a Globe investor

Question: : Why aren’t Canadian banks growing like the big American banks? JPMorgan Chase & Co. JPM-MNfor example, is up about 17 percent this year, and Wells Fargo & Co. WFC-N gained about 22 percent. Canadian banks are either declining or reporting single-digit profits. Why is this happening and what will it take for Canadian banks to reach the next level?

Answer: I asked your question to Rob Wessel, a former top banking analyst who is now managing partner of Hamilton ETFs.

“Historically, Canadian banks have invested very heavily compared to their U.S. large-cap counterparts. “That said, U.S. banks have recently performed significantly better than other Canadian banks,” Mr. Wessel said in an email.

There are several reasons for this, he said. A year ago, American banks had lower valuations than Canadian banks. However, thanks to a resilient U.S. economy, U.S. banks reported stronger earnings per share growth, helped by rising net interest income, solid loan growth and strong capital markets for the largest banks.

“On the other hand, the sluggish Canadian economy weighed on our banks’ revenue growth and contributed to a large and sustained increase in loan loss provisions, making it more difficult for Canadian banks to grow profits, weighing on their stocks. Taken together, this has created a surprisingly large performance divergence that will be difficult for U.S. banks to sustain,” he said.

Problems specific to individual Canadian banks also weighed on their stock prices. In particular, Toronto-Dominion Bank TD-T has been heavily criticized over allegations that drug traffickers took advantage of its lax U.S. anti-money laundering controls to siphon off hundreds of millions of dollars in illicit profits, prompting an investigation by the U.S. Department of Justice and financial regulators . Analysts estimate that TD will ultimately face a fine of around $2 billion.

TD kicked off second-quarter earnings season for banks on Thursday, reporting adjusted net income of $3.79 billion, a slight increase from last year and topping analyst estimates. The remaining Big Six banks will report this week.

According to Mr. Wessel, potential catalysts for an increase in Canadian bank stock prices include stronger economic growth, more favorable capital markets and better lending conditions.

“In our view, analyst estimates for credit losses for next year – 2025 – are quite conservative and include continued provisioning, which is a large assumption given that total allowances for credit losses have increased for seven consecutive quarters and are now near all-time highs achieved during the Covid-19 pandemic,” he said.

“This conservatism creates the risk that credit losses next year will be lower than expected, which will translate into better-than-expected earnings and higher consensus earnings estimates for 2025. Finally, the sector is not terribly expensive in terms of forward earnings, with an average multiple approximately 10.3 times 2025 estimates, and the dividend yield averages close to 5 percent, providing some downside protection.”

–John Heinzl (Email your questions to [email protected].)

What will happen in the coming days

Tom Czitron will have some fresh advice on where to place your bets in today’s bond market.

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Prepared by Globe Investor Staff