What Trump’s energy department has in store for investors #NewsMarket

Hello from New York.

Just before Americans departed for the Thanksgiving holiday, Republicans landed a punch on BlackRock, State Street and Vanguard over environmental, social and governance (ESG) investing.

Texas and 10 other Republican-led states are suing the trio of asset managers, alleging they conspired to curtail coal supplies to further “a destructive, politicised environmental agenda”.

Analysts at Jefferies said “the probability of an antitrust litigation case winning is low,” but added that “there had never been a lawsuit filed on the grounds of antitrust and ESG — it was just a risk.” Now these three giant asset managers are in uncharted territory. We will monitor this litigation as it develops.

For today, I have a piece about Chris Wright, Donald Trump’s choice to lead the US energy department, and how investors should be thinking about the energy sector in the months ahead.

Trump’s return sends oil and nuclear stocks surging

Donald Trump’s cabinet picks for his second administration have sparked a media firestorm. Chris Wright, tapped to head the energy department, has not been among the most hotly discussed nominations — but the policies he oversees could have major implications for investors, as well as for the US energy transition.

The founder of Liberty Energy, which provides services to shale oil and gas producers, Wright has been a vocal sceptic of climate change concerns, claiming that “there is no climate crisis and we are not in the midst of an energy transition either”.

US stocks in the S&P oil exploration and production index have jumped 12 per cent since Trump’s election victory. The president-elect, who repeatedly expressed his support for the fossil fuel sector on the campaign trail, is widely expected to ditch restrictions imposed by Joe Biden’s administration on fossil gas exports while accelerating approvals for oil drilling projects.

In contrast, investors have dumped solar, wind and other clean energy stocks since Trump’s victory. The iShares Global Clean Energy ETF is down 9 per cent since Trump won and is trading at the lowest level since June 2020. Some clean tech businesses have paused capital expenditures amid fears that Trump could slash the tax credits provided under Biden’s clean energy-focused Inflation Reduction Act.

But, while renewable energy companies could face reduced support under the new administration, nuclear power offers another option for eco-conscious investors navigating Trump’s new economy.

Wright is expected to reorientate the energy department away from clean energy and towards boosting both natural gas and nuclear energy, according to a November 20 report from TD Cowen.

Wright is on the board of Oklo, a California company that does nuclear fuel recycling and is developing fission power plants. The company’s chair is Sam Altman, founder of artificial intelligence business OpenAI. Oklo’s shares are up 7 per cent since the election was called for Trump.

Other nuclear providers have surged even more on the back of Trump’s return to power. NuScale Power, an Oregon-based maker of small modular reactors that run on low-enriched uranium, has seen its share price shoot up 45 per cent since Trump’s victory earlier this month.

But both companies remain unprofitable for now. For investors eager for safer stocks in the nuclear sector, Vistra and Constellation have been two of the best performers. Texas-based Vistra has seen its share price triple so far this year. Earlier this year, the company expanded its nuclear operations and is now generating enough nuclear electricity to power 3.2mn US homes.

Constellation is also benefiting from the energy demand driven by artificial intelligence as technology companies hunt for electricity. Constellation Energy is restarting the Three Mile Island nuclear plant in Pennsylvania to provide power to Microsoft.

While “drill, baby, drill” was one of Trump’s favourite refrains on the campaign trail, he was quieter on nuclear power. But during his first term in office, Trump made a series of moves to promote nuclear power, including executive orders promoting small nuclear reactors and establishing a working group to “reinvigorate the entire nuclear fuel supply chain”.

Investors should be wary, however, of blindly assuming that Trump’s administration will be a key factor supporting energy company stock prices.

“Although both nominee Wright and Trump are vocal proponents of the US oil industry and critics of low-carbon energy, we continue to see recent efficiency gains as being the key determinant of US [oil and gas] production growth more than government policy,” Morningstar said in a November 19 report.

For investors, the increasing use of AI and electricity demand by technology companies underscores how energy needs are accelerating. Nuclear is likely to be spared the political difficulties that wind and solar energy may face under Trump’s second administration. And Wall Street is expecting nuclear demand to increase in the years ahead.

“During the last two decades, installed nuclear capacity grew by only about 10 per cent [globally]but we expect it to more than double by 2060 versus 2023,” Goldman Sachs said in a November 12 report.

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