Beyond tariffs: Policy and stock sectors
- Renewable energy stocks have tumbled in recent weeks
- Effort to end clean energy tax credits may face uphill battle
- Gold closes in on $3,000, S&P 500 hits correction territory
While markets continue to react to a tariff landscape that sometimes appears to shift on an almost hourly basis, other facets of the US policy story may get lost in the weeds.
That could result in traders and investors overlooking developing market stories and opportunities, according to Morgan Stanley & Co. research analysts, who recently highlighted a few key “sectoral impacts” of US policy choices outside the tariff sphere.
One of them involves clean energy, which has been under pressure lately. For example, two representative renewable energy stocks, Constellation Energy (CEG) and First Solar (FSLR), have lagged the S&P 500 (SPX) by a wide margin over the past two months, especially in the three weeks since the SPX pulled back from record highs:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
For some context, over the past decade FLSR has modestly underperformed the SPX while CEG has outperformed it nearly fivefold.
From a certain perspective, the recent drawdowns in these stocks may appear to make sense, given expectations for the Trump administration to move away from renewable energy initiatives. That includes a possible repeal of the Biden administration’s Inflation Reduction Act (IRA), which included tax credits for renewable energy.
However, the Morgan Stanley & Co. researchers make the case that clean energy stocks may be pricing in too high a probability of repeal. For example, 18 House Republicans recently signed a letter urging the Speaker of the House to protect some of the IRA’s energy tax credits. That may sound inconsequential, but because of the slim Republican majority, only a handful of opposing votes are needed to block legislation.
In other words, it’s possible the increased bearishness in renewable stocks like CEG and FSLR doesn’t accurately reflect the real-world likelihood of a significant US policy shift against them.
While tariffs will likely dominate policy discussions for the foreseeable future—and continue to contribute to market uncertainty and volatility—traders and investors should keep an eye on other parts of the policy story that may have implications for the markets.
Market Mover Update: On Thursday gold prices got closer to the $3,000 mark, riding a 1.5% gain to new record highs. Cash gold prices reached $2,988.72, while April gold futures (GCJ5) pushed above last month’s highs, rallying to $3,001.50 intraday before ending the day at $2,991.30:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
Gold was up around nearly 16%% for the year as of Thursday, trailing silver by roughly two percentage points. The metals and mining group has anchored the S&P 500 materials sector so far this year, with a year-to-date gain of 9.4%—the fifth-highest return of the index’s 48 industry groups.
After tagging the threshold on an intraday basis earlier this week, the SPX closed in correction territory on Thursday, -10.1% below its February 19 record close.
Today’s numbers include (all times ET): Preliminary consumer sentiment (10 a.m.).
Today’s earnings include: Buckle (BKE).
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1 MorganStanley.com. The Other Policy Choices That Matter. 3/12/25.