Market Decode: What's ahead for the renewable energy sector?

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After a challenging few years, solar, wind and other clean energy investments could be poised for an upturn
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Bear Market
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Market Decode
On-screen disclaimer:
Please read important information at the end of this program. Recorded on 3/26/2024.
[Joe Quinlan speaking throughout]
After a post-pandemic boom, renewable energy stocks went bust. So, where is the sector headed now?
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Joe Quinlan
Head of CIO Market Strategy, Chief Investment Office
Merrill and Bank of America Private Bank
Hi, I'm Joe Quinlan, with a closer look at why we believe renewable or clean energy, despite recent headwinds, holds long-term potential for investors. First, some background:
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MSCI Global Alternative Energy Index more than tripled from March 2020 to Jan. 2021.
Source: MCSI. Past performance is no guarantee of future results. It is not possible to invest directly in an index.
From March 2020 to January 2021, the MSCI Global Alternative Energy Index more than tripled — amid global commitments to clean energy and growing concerns over the climate and the availability of fossil fuels. Since then, solar, wind and other renewables have given up virtually all those gains. Why? We see four key factors at play.
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Challenges for renewable energy
  • Sector has become overvalued
  • Rising rates made financing more expensive
  • Competition from natural gas
  • Drop in demand from China
First, the wave of excitement left the sector overvalued. Second, rising interest rates made financing of projects and equipment more expensive. Third, declining natural gas prices made renewables less competitive. And finally, the economic slowdown in China helped spur a drop in demand.
The good news is, we believe these challenges, while real, are temporary and unlikely to stem the transition to a clean energy economy.
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Good news for renewable energy
  • Emissions reduction policies remain priorities
  • Energy security favors alternative fuels
  • Technology improvements
  • Falling costs and rising efficiency
Emissions reduction policies at the local, national and international levels remain priorities. Energy security, a growing concern in Europe and globally, argues in favor of alternative fuels. And as the technology continues to improve, costs should fall as efficiency rises.
In addition, a decline in inflation, along with a shift towards lower interest rates could contribute to a resurgence for the sector.
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Potential opportunities include solar and wind,
manufacturers of related components, and commodities.
That could create investment opportunities in solar and wind projects, as well as manufacturers of batteries, inverters and other components, and commodities such as copper, nickel, lithium, graphite and cobalt.
For more timely insights on the economy and the markets, be sure to read our weekly Capital Market Outlook. Thanks for watching.
  • risk tolerance
  • financial goals
  • timeframe
On-screen disclosures:
The opinions expressed are as of 3/26/2024 and are subject to change.
Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.
Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. All sector and asset allocation recommendations must be considered in the context of an individual investor’s goals, time horizon, liquidity needs and risk tolerance. Not all recommendations will be in the best interest of all investors. Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration. Investing in commodities or the securities of companies operating in the commodities market involves a high degree of risk, including strategies and investment practices that may increase the risk of investment loss, including the principal value invested.
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MSCI Global Alternative Energy Index includes developed and emerging market large, mid and small cap companies that derive 50% or more of their revenues from products and services in Alternative energy.
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Since early 2021, renewable energy has faced a number of hurdles, but the outlook could soon be looking brighter.

In the video above, Joe Quinlan, head of Market Strategy for the Chief Investment Office (CIO), looks at several factors he believes could provide long-term momentum for the sector and create potential opportunities for investors. These include solar and wind power and companies involved in manufacturing related components, along with commodities, like copper, nickel and cobalt.
For more insights into the markets and economy, read the CIO's weekly Capital Market Outlook.