Weekly Market Commentary - June 28, 2024

The Markets

Are we at an inflection point?

The transition to renewable energy has been moving forward and may be reaching an inflection point. In 2023, global renewable energy capacity increased by almost 50 percent, reported the International Energy Agency (IEA). Renewable capacity reached all-time highs in the United States, Europe and Brazil. However, the leader in new capacity is China. In 2023, the country “commissioned as much solar PV [photovoltaic] as the entire world did in 2022,” stated the IEA’s Renewables 2023 report.

In the United States, solar power is responsible for a relatively small amount (3.9 percent in 2023) of all electricity generated; however, solar is growing faster than any other source of electricity. One reason for the growth is Big Tech companies’ commitment to clean energy. Four of the “Magnificent Seven” were responsible for “40% of the demand for large, utility-scale solar projects in the U.S. over the past five years,” reported Spencer Kimball and Gabriel Cortés of CNBC.

“To call solar power’s rise exponential is not hyperbole, but a statement of fact. Installed solar capacity doubles roughly every three years, and so grows ten-fold each decade. Such sustained growth is seldom seen in anything that matters. That makes it hard for people to get their heads round what is going on. When it was a tenth of its current size ten years ago, solar power was still seen as marginal even by experts who knew how fast it had grown. The next ten-fold increase will be equivalent to multiplying the world’s entire fleet of nuclear reactors by eight in less than the time it typically takes to build just a single one of them,” reported The Economist.

The IEA forecasted that by 2028 renewable energy sources will generate more than 42 percent of the world’s electricity. Wind and solar PV energy sources are expected to deliver about 25 percent of global electricity.

There are some obstacles to renewable energy growth, though. Current constraints include siting, permitting and grids, reported BloombergNEF. From 2000 to 2018, just 20 percent of U.S. renewable energy projects that sought to be connected to the power grid were actually connected.

“Grids were not originally set up for such a fast-paced energy system; their tools and processes were developed in a slower, less volatile world…[Renewable energy source] infrastructures are already available and rapidly increasing. However, taking advantage of renewables requires a power grid that can accommodate these intermittent energy sources,” reported McKinsey & Company’s Adam Barth and colleagues.

While Canada is best known for being one of the biggest oil producers that contributes to fossil emissions and global warming, it is also a major producer of clean energy. Due to its vast territory and varied terrain, it boasts vast renewable energy sources that can be harnessed for power generation. These sources encompass moving water, wind, solar biomass and energy from the sea. Canada is at the forefront globally in generating and utilizing power from these renewable sources. The renewable energy and storage industries in Canada expanded by a consistent 11.2% this year, as detailed in the latest yearly report on the sector, unveiled by the Canadian Renewable Energy Association (CanREA) today.

Meanwhile, the Canadian main stock index, the Toronto Stock Exchange, remained under pressure on Friday, marking the fifth consecutive week of losses. It is the longest stretch of losses, dating back to May 2023. The Index is only up by about 2.9% for the year compared to a 14.6% gain for the US benchmark, the S&P 500.

The losses in the Canadian stock market have mainly been fueled by losses in the Commodity sector. The materials sector, which includes metal, miners and fertilizers, was down by 1.3% last week, triggered by losses in gold and copper prices. Weakness in the commodity sector is being fueled by concerns over surplus supplies and sluggish demand, especially in China.

Last week, major stock market indices finished higher with the Standard & Poor’s 500 Index chalking up its 31th record high for 2024 during the week, reported Jacob Sonenshine of Barron’s. Many maturities of U.S. Treasury bonds finished this week slightly higher than they ended last week.

Source: FactSet

COIN CONUNDRUM. What do you do with loose change? Many people have informal collecting stations: a money jar in the kitchen, a slide of coins on the dryer, or a jangle of change in a backpack. Oyin Adedoyin of The Wall Street Journal reported via MSN:

“Coins are as good as junk for many Americans. Buses, laundromats, toll booths, and parking meters now take credit and debit cards and mobile payments. Using any form of physical currency has become more of an annoyance, but change is often more trouble than it is worth to carry around. The U.S. quarter had roughly the buying power in 1980 that a dollar has today.”

Sometimes, coins are exchanged for dollars at the bank, but a lot of change ends up in the trash. A waste management company in Pennsylvania recovers $500,000 to a million dollars in coins each year as it sorts metal from other waste.

And that’s just the face value of the coins.

U.S. coins often cost more to make than they are worth. The biennial report from the United States Mint showed that, in 2022, the United States spent:

• 2.7 cents to make a penny,
• 10.4 cents to make a nickel,
• 5 cents to make a dime, and
• 11 cents to make a quarter.

“Currently, Congress must pass a law to either specifically make changes to statutory coin composition or provide authority for the Mint to change to an alternative metal under certain conditions,” stated the report. Depending on the solution, a change could save the government $12 to $24 million.

The Mint recommended that Congress take steps to remedy the issue. Legislation was introduced to the 116th Congress, which governed from 2019-2021 (the Coin Metal Modification Authorization) and the 117th Congress, which governed from 2021-2023 (Cost Savings Act). So far, it has not been passed.

Weekly Focus – Think About It

“Don’t tell me where your priorities are. Show me where you spend your money, and I’ll tell you what they are.”

-- James W. Frick, former development officer, University of Notre Dame

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Disclaimer:

Information in this article is from sources believed to be reliable, however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, Eric Muir and Derek Lacroix and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member Canadian Investor Protection Fund.