Volatile energy markets are here to stay if investment in sustainable power fails to keep up with energy demand, IEA warns

Solar installer working
Solar panels.

  • Recent volatility in energy prices could become the norm if investments in renewable sources aren’t enough to meet demand, the IEA warned.
  • “We are not investing enough to meet future energy needs, and the uncertainties are setting the stage for a volatile period ahead,” the agency said.
  • More investments in renewable energy are necessary to reduce carbon emissions and to prevent an economic shock from a surge in oil prices, the IEA said.
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A surge in energy prices in Europe and Asia due to an ongoing supply crunch could become the norm if investments in renewable sources aren’t accelerated, the International Energy Agency warned in its annual outlook report.

The watchdog group said that while demand for energy continues to surge as global population growth continues and millions of people are lifted out of poverty every year, it will be essential for supply to play catch-up to avoid an ongoing surge in oil, coal, and natural gas prices.

“We are not investing enough to meet future energy needs, and the uncertainties are setting the stage for a volatile period ahead,” the IEA said.

A lack of investment in renewable energy sources like solar and wind could be a lose-lose situation for the global population, as it would lead to a continued rise in carbon emissions and could also contribute to an economic shock if energy prices stay elevated.

To achieve the goal of transitioning to net-zero emissions by 2050, the energy grid needs to play a delicate balancing act in matching supply with demand when transitioning away from fossil fuels and toward less carbon-heavy alternatives.

“If the supply side moves away from oil or gas before the world’s consumers do, then the world could face periods of market tightness and volatility. Alternatively, if companies misread the speed of change and over-invest, then these assets risk under-performing or becoming stranded,” the IEA report said.

The world is grappling with that imbalance after coming out of the pandemic, as demand was underestimated and energy suppliers are struggling to catch up. Oil prices are up 60% year-to-date, and US natural gas prices have more than doubled.

To meet the expected surge in energy demand and at the same time reach a net-zero emission goal by 2050, the IEA forecasts that $4 trillion in annual spending on renewable energy will be needed by 2030. Much of that funding must come from the private sector, but leadership is required.

“Clear signals and direction from policy makers are essential. If the road ahead is paved only with good intentions, then it will be a bumpy ride indeed,” the IEA report said.

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General Motors could surge 46% as it transitions vehicle software to a recurring subscription model, Wedbush says

2024 GMC Hummer EV SUV
2024 GMC Hummer EV SUV.

  • General Motors’ 10-year plan will see the company transition to a profitable software subscription model, according to Wedbush.
  • The research firm said in a Monday note that recurring revenue from its software business will drive 46% upside in GM stock.
  • “The software and services business attached to the EV shift represents a potential gold mine for the company,” Wedbush said.
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General Motors is poised to capitalize on its transition to electric vehicles through the sale of value-added software that will enable autonomous driving capabilities, according to a Monday note from Wedbush.

That should help drive General Motors’ stock price to record highs, with Wedbush backing its “outperform” rating and an $85 price target, representing potential upside of 46% from Monday’s close.

Wedbush analyst Daniel Ives said General Motors’ aggressive 10-year growth plan laid out at its analyst event earlier this month is “clear and hittable.” The automaker said it expects to double its revenue from $140 billion to $280 billion by 2030.

That growth will be driven in part by a software subscription for vehicles, which would enable autonomous and assisted driving capabilities. Ives expects General Motors to realize $2,000 in annual recurring revenue per vehicle from its software offerings.

“The software and services business attached to the EV shift represents a potential gold mine for the company, bringing in $20 billion to $30 billion of incremental services and software [revenue] we see over the next 5 to 7 years,” Ives said.

And as the demand for autonomous driving increases, General Motors will have considerable pricing power and be able to raise its software subscription prices throughout the decade, according to Ives. General Motors has been developing its own autonomous driving technology through its 2016 acquisition of Cruise.

While General Motors’ autonomous driving software subscription model is still under development, most important to the company’s stock price going higher is a re-rating from Wall Street. That will hinge on the automaker’s ability to convert its existing vehicle base to electric.

“The Street for obvious reasons remains skeptical and the Chevy Bolt fiasco and chip shortage have combined cast a dark shadow over the stock and thus kept many investors at bay,” Ives explained. But the automaker can shift the narrative among investors as it lays the groundwork to capitalize on a “golden opportunity,” according to Ives.

Ives expects General Motors to convert 20% of its customer base to electric vehicles by 2026, and 50% by 2030. That EV base is what will help drive an explosion in software growth for the 113 year-old company.

Shares of General Motors traded up 1% in Tuesday trades, and are up about 40% year-to-date.

General Motors stock price
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Palo Alto Networks could rise 22% on the back of increased government spending to combat cyber threats, Wedbush says

Air Force cyberattack cyber-defense cyber
Tech. Sgt. Noe Kaur, a cyber-defense supervisor with the 1st Combat Communications Squadron, launches cyberattacks as part of an exercise at the US Air Forces in Europe Regional Training Center at Ramstein Air Base in Germany, March 8, 2019.

  • Palo Alto Networks stock could surge 22% from increased government spending on cybersecurity, Wedbush said in a Sunday note.
  • Analysts said internal checks on spending are tracking higher after recent high-profile attacks.
  • “We believe federal cybersecurity spending is tracking to be up 20% to 25% year-over-year for 2021 with consistent growth into 2022,” Wedbush said.
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High-profile cyber attacks against Solarwinds and Colonial Pipeline have ignited increased spending in cybersecurity that is set to benefit Palo Alto Networks stock, according to a Sunday note from Wedbush.

Wedbush raised its price target on Palo Alto Networks to $600, representing potential upside of 22% from Friday’s close. The investment firm cited internal checks on cybersecurity spending that are tracking strong for the third quarter.

“Our September quarter checks have been robust for the cyber security space as deal flow is clearly accelerating into year-end on the digital transformation shift among enterprises and governments,” Wedbush explained.

Much of that spending is being driven by the government, as civilian and defense agencies “are laser focused on protecting data/endpoints/infrastructure” amid an ongoing surge in cyber attacks.

“We believe federal cyber security spending is tracking to be up 20% to 25% year-over-year for 2021 with consistent growth into 2022 as the Biden cyber security standards and recent high profile attacks are accelerating larger deals,” Wedbush said.

Deal activity for Palo Alto Networks is tracking ahead of Wedbush’s expectations with momentum building into year-end, according to the note. And some of that business is coming from the private sector, as executive decision makers green light more cybersecurity spending in hopes of not becoming a news headline in a future attack.

Growth from the private sector should continue as a shift to the cloud continues. “We believe there is a $200 billion growth opportunity in cloud security alone ‘up for grabs’ over the next few years for those vendors that have the solution sets to protect critical cloud deployments,” Wedbush said.

The positive internal spending checks and a strong growth outlook give Wedbush “high conviction” in owning secular cybersecurity stocks like Palo Alto Networks. Other cyber security stocks Wedbush is bullish on includes Tenable and CyberArk.

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Bank of America outlines what could make or break an investor’s ability to generate positive stock-market returns over the next decade

NYSE trader
New York Stock Exchange.

  • The buy-and-hold investment strategy that has worked so well may be at risk over the next decade, Bank of America said in a Friday note.
  • The bank forecasts a flat return for the stock market over the next 10 years, unless dividends are reinvested.
  • “The simple act of reinvesting dividends could yield a total return equivalent to the S&P 500 at 6,000 in 2031,” BofA said.
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Investors conditioned to buy stocks and hold for the long-term may be in for a decade of pain if Bank of America’s outlook proves correct.

Led by equity and quant strategist Savita Subramanian, the bank highlighted that its valuation model is currently forecasting a flat return over the next decade for stocks – or 0% – according to a Friday note that cited supply-chain woes and peak globalization.

“COVID-related supply chain issues have spread beyond consumer goods. And longer-term signs of global friction are easy to find. But risk premia barely reflects this,” Subramanian explained.

To combat the potential 0% returns over the next decade, BofA says the number one thing an investor can do is reinvest their dividends.

“The simple act of reinvesting dividends could yield a total return equivalent to the S&P 500 at 6,000 in 2031, assuming long-term average growth and payouts,” the note said.

Hitting that mark in the next 10 years would represent a total return of only 36% for the S&P 500, or an annualized gain of about 3%. That’s just a fraction of the past decade’s return of 360%, representing an annualized return of about 16%, according to data from Koyfin.

But with stocks expensive on nearly every metric, “double digit gains from the benchmark may be hard to repeat,” Subramanian said.

While BofA’s outlook is much bleaker than recent history, it would continue a decades-long trend of dividends driving much of the stock market’s return. Since 1970, 84% of the total return of the S&P 500 can be attributed to reinvested dividends, according to data from Morningstar and Hartford Funds.

To enable dividends to be automatically reinvested, an investor can contact their broker or enable the option online. And if fractional share trading is allowed, investors can manually purchase fractional shares whenever a dividend is paid to their account.

For example, every time Apple pays its quarterly dividend of $0.22 per share, an Apple investor will automatically buy .0015 shares of Apple. Then, compound interest will do the rest of the work.

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3 reasons why energy is the best sector of the stock market to invest in right now, according to JPMorgan

Oil rig sunset background
Oil rigs.

  • The sharp outperformance in energy stocks this year is likely to continue, JPMorgan said in a note on Thursday.
  • The bank named the energy sector as one of its favorites and said it offers an attractive risk vs. reward profile.
  • These are the 3 reasons why JPMorgan is advising its clients to invest in energy stocks.
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It’s not too late for investors that missed out on this year’s best-performing sector to gain some exposure, JPMorgan said of energy stocks in a note on Thursday.

The energy sector is up about 50% year-to-date, nearly triple the S&P 500’s 17% gain over the same time period. But there’s still room for energy stocks to play catch-up to the broader market when looking at a longer time horizon, the bank noted. Since 2014, the energy sector is lagging the broader market by a whopping 183%.

JPMorgan sees gains continuing for energy stocks as a supply crunch pushes oil, natural gas, and even coal prices through the roof. Those prices could continue to creep even higher, as JPMorgan sees oil potentially surging to $130 per barrel.

The energy sector offers an attractive risk vs. reward profile to investors thanks to three key reasons: low valuations, improving fundamentals, and increasing capital returns, JPMorgan said.

In fact, valuations of energy stocks are so low that the sector represents only about 3% of the S&P 500 today, down from about 20% at one point, the analysts noted. That leaves significant runway for the sector to increase its value as favorable economics wash over energy companies amid a surge in oil prices.

“As is usually the case with commodities, we expect the energy recovery to be swift and more extreme than post-bust rebounds seen in other asset classes such as commercial real estate during the 1990s, dot.com during the 2000s, and financials/housing during the 2010s,” JPMorgan said.

The bank said investors looking for the most upside potential in the sector should buy small-cap energy stocks. That’s because they have higher sensitivity to rising oil prices, are undergoing a balance sheet recovery, and are potential merger targets as larger peers look to build up their reserves.

And many of the risks that have scared investors out of energy stocks over the past few years, like regulations, the rise of ESG investing, and a surge in electric vehicles, are actually catalysts for buybacks and dividends.

Those factors are “helping bring much needed discipline to the sector with a focus on reducing debt and returning excess shareholder capital rather than higher market-share and production,” JPMorgan said.

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Bitcoin reclaims $1 trillion market value as risk-on rally clears path for potential 20% upside

Bitcoin crypto currency physical banknote and coin imitations.
Bitcoin crypto currency physical banknote and coin imitations.

  • Bitcoin rallied as much as 8% on Wednesday, helping the cryptocurrency reclaim its $1 trillion valuation.
  • The price has surged more than 30% over the past week as concerns about Congress’ ability to raise the US debt ceiling grow.
  • If bitcoin can stay above the $52,900 resistance level, its next target will be the prior record high of about $65,000.
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Bitcoin’s 34% rally over the past week has once again catapulted the cryptocurrency to a more than $1 trillion market valuation for the first time since May 10, according to data from CoinMarketCap.

The surge in bitcoin has come amid ongoing concerns surrounding Congress’ potential inability to raise the US debt ceiling before the Treasury department runs out of money on October 18.

That potential economic catastrophe would only validate the foundation of bitcoin, which was created to be a decentralized form of money that is not influenced by decision makers in Washington, D.C.

Bitcoin’s Wednesday rally of as much as 8% also helped push the trillion-dollar crypto coin above its prior resistance level of $52,900, an important level monitored by technical analyst Katie Stockton of Fairlead Strategies.

If bitcoin manages to decisively hold above that level for at least two consecutive daily closes, it would clear the path for bitcoin to retest its mid-April record high of about $65,000, representing potential upside of 20% from current levels.

“We expect short-term overbought conditions to be weathered long enough for a test of minor resistance near $52.9K, a breakout above which would target the all-time high,” Stockton explained in a Tuesday note, before bitcoin’s rally got it above the key resistance level.

And now, momentum is on bitcoin’s side, with short-, intermediate-, and long-term momentum indicators all in positive territory as of Tuesday, she said.

While Stockton doesn’t expect support levels to be tested in the near-term, she does highlight the first likely support level of $46,700, representing potential downside of 15% from current prices.

Bitcoin price chart
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Runaway inflation isn’t a concern and mega-cap tech can power stocks higher despite rising interest rates, Fundstrat’s Tom Lee says

Tom Lee
Fundstrat’s Tom Lee.

  • Mega-cap tech stocks can continue their rise even amid rising interest rates, Fundstrat’s Tom Lee told CNBC on Friday.
  • That line of thinking is contrarian to the often impulse sell-off seen in tech stocks whenever interest rates move higher.
  • Lee also thinks investors can rest easy as he doesn’t see runaway inflation unfolding in the US.
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Two of the biggest stock market risks worrying investors right now don’t concern Fundstrat’s Tom Lee, according to a Friday interview with CNBC.

Inflation has been on the rise amid supply-chain disruptions from the COVID-19 pandemic and increasing wage pressures. Core inflation rose 3.6% in August, representing the biggest year-over-year jump in more than 30 years.

That’s leading some investors to worry that rising inflation is not as transitory as Fed Chairman Jerome Powell may think.

Higher inflation puts upward pressure on interest rates, which sparked a steep sell-off in mega-cap stocks this week after the 10-Year US Treasury yield jumped to the the highest level in more than three months.

Lee admits runaway inflation would reprice the stock market lower. But the fear of it actually happening – and then hitting tech stocks via rising interest rates – isn’t fazing him.

That’s because Lee doesn’t think wage growth is sticky. Job turnover is picking up across many industries, and wage growth may be high now due to shortages but won’t be at those same rates in a few years, he said.

Population growth is another important factor to consider when forecasting future inflation. And right now, the US is stalling, with 2020’s population gain the slowest since the Great Depression.

“The biggest risk would be if the US population was growing faster, because that’s how you anchor increasing wage expectations. There really hasn’t been any country with slow population growth that has had sustained inflation. It’s one of those misconceptions because people think [inflation] is purely a monetary phenomenon,” Lee explained.

“I think investors have more anxiety about inflation risks than the actual realized risks will be,” Lee added.

Stock market outlook: still bullish on S&P 500, FAANG

Rising interest rates don’t yet pose a threat to the S&P 500’s current bull market run because they are still sitting at historically low levels, Lee said.

Ten-year Treasury yields of 1.5%-2% won’t burden companies, homeowners, or people with debt, and won’t hold back stockholders, he predicted.

And while a spike in interest rates has often led to a steep sell-off in high-growth technology stocks, Lee said a continued move higher in rates won’t stop tech stocks from powering the S&P 500 to his year-end price target of 4,700, representing potential upside of 9% from Thursday’s close.

“The fundamental question is going to be are FAANG margins at risk because [interest] rates rise? Operating margins could actually rise if rates are rising, and FAANG’s relative performance during periods of inflation is actually pretty good,” Lee explained, citing internal research.

And because FAANG is not as crowded a trade as it was last year during the stay-at-home stock boom, they can still rally strongly into the end of the year, Lee said.

The current 5% sell-off in the stock market is “just a squiggle, and as we zoom out it’s going to look like nothing in 12 months,” Lee concluded.

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4 reasons why Dollar Tree is raising prices above $1 but below $3 and why the stock has 30% upside ahead, according to JPMorgan

dollar tree
Dollar Tree.

  • Dollar Tree surprised many on Wednesday with its announcement that it would raise the prices of its goods to more than $1.
  • While part of the decision has to do with rising inflation, there are other reasons for the move.
  • These are the 4 reasons why Dollar Tree is raising its prices above $1 but below $3, according to JPMorgan.
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Dollar Tree shocked many after raising the prices of its goods above $1, but Wall Street sees advantages to the move beyond offsetting higher costs. Shares dipped Thursday after surging 16% Wednesday.

The deep discounter had a long-held practice of pricing every good on its shelves at $1. But Dollar Tree isn’t immune to rising inflation, higher shipping costs, and supply-chain bottlenecks that have ravaged nearly all industries since the start of the COVID-19 pandemic last year. That’s why the company is doing the inevitable, raising prices to maintain – if not grow – its bottom line.

JPMorgan analysts view the move as a positive for the stock, as it will help fuel long-term growth and insulate the company from a further jump in inflation. The bank rates the dollar-store retailer at Overweight with a $131 price target, representing potential upside of 30% from Wednesday’s close.

These are the four reasons why Dollar Tree is raising its prices above $1 but below $3, according to a Wednesday note from JPMorgan.

1. “Test & learn process.”

Dollar Tree has seen “validated reception” among its customers of price points that were above $1 in select locations it tested the price increases.

2. “Dynamic macro backdrop.”

Dollar Tree’s price increases account for both transitory cost bumps from shipping and supply-chain bottlenecks, and structural cost bumps, including higher wages and commodity costs.

3. “Improved assortment opportunity.”

The selective price increases give Dollar Tree more flexibility in adding new and different products to its shelves that customers have been asking for and at targeted margin thresholds.

4. “Increased merchant flexibility.”

Dollar Tree’s price increases will give merchants flexibility for larger package sizing in an environment in which industry suppliers with limited inventory prioritize more profitable larger pack sizes relative to Dollar Tree’s smaller $1 pack sizes.

“Importantly, management’s overarching #1 priority will remain ‘value,’ which ultimately will determine out-the-door price point per SKU citing opportunity to grow the customer base, improve sales productivity, better leverage fixed costs, and accelerate bottom-line operating profit dollars,” JPMorgan said.

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Here’s why the steep sell-off in Roku stock is overdone and the shares are set to soar 56%, according to Bank of America

GettyImages 1204852519
Roku hits 50 million active accounts.

  • The 35% sell-off in shares of Roku is overdone, and investors should maintain a bullish outlook on the streaming platform, Bank of America said in a Tuesday note.
  • The bank reiterated its $500 price target for Roku, representing potential upside of 56% from Monday’s close.
  • BofA thinks Roku will be able to hold its own against imminent competition from Amazon in the connected TV space.
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The two-month, 35% sell-off in shares of Roku is “overdone” and represents a buying opportunity, Bank of America said in a note on Tuesday.

The bank reiterated its $500 price target for the maker of the popular streaming box, representing potential upside of 56% from Monday’s close. “Thesis remains intact and a secular shift to streaming continues,” BofA said.

Roku’s steep sell-off could partly be attributed to Amazon’s decision to launch its own smart-connected TVs, investor focus shifting to return to work and school stocks, and Disney’s decision to release the rest of its 2021 movie lineup in theaters exclusively before sending them to streaming platforms.

But BofA is not fazed by those temporary drawbacks, and says Roku will be able to hold its own against increased competition from smart-connected TVs that utilize Amazon’s Fire or Google’s Chromecast platforms.

The bank gave a handful of reasons why Roku’s investment positives remain unchanged, including its large scale, the ongoing shift of ad spend to streaming, its large international opportunity, and its push into developing more original content.

BofA also increased its average revenue per user estimate for Roku “given strong performance at the upfronts, and as Roku becomes a more attractive platform for advertisers to spend,” BofA said.

Despite the positive note from Bank of America, shares of Roku fell more than 3% Tuesday amid a broad sell-off in high growth technology stocks due to a rise in interest rates.

Roku stock chart
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The sell-off sparked by the Evergrande crisis has shaken retail investors’ buy-the-dip mentality, JPMorgan says

NYSE Trader
A trader works on the floor at the New York Stock Exchange (NYSE) in New York City, New York, U.S., March 3, 2020.

  • Retail investors’ confidence in the buy-the-dip trade was jolted after Monday’s stock market sell-off, JPMorgan said in a note.
  • The Evergrande debt crisis sparked $11 billion in outflows from equity ETFs on Monday.
  • “The outflow happened on a down day and is thus inconsistent with the buy-the-dip behavior,” JPMorgan said.
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The Evergrande-induced stock market decline earlier this week jolted confidence in the buy-the-dip trade, JPMorgan said in a note on Wednesday.

The bank highlighted $11 billion in outflows from equity ETFs on Monday, which happened on a day where stocks were down as much as 3%. “The outflow happened on a down day and is thus inconsistent with the buy-the-dip behavior,” JPMorgan said.

Monday’s sharp outflow was one of the largest this year when excluding days with quarter-end option and futures expiry dates, according to the bank. And while momentum traders could have played a significant role in the near 5% stock market correction due to a break-down in certain indicators, retail investors also played a role, JPMorgan said.

Retail investors’ net inflows into equities peaked at around $16 billion in July, before falling to $15 billion in August and declining even further so far in September, JPMorgan said, citing internal research.

“We would need to see more significant inflows into equity ETFs today and the following days to be able to say that retail investors’ impulse into equities and their previous buy-the-dip behavior remains intact,” the note said.

Confidence among retail investors likely surged in recent days given the solid rebound in stocks since Monday’s decline. Despite a decisive breakdown below the technical 50-day moving average earlier in the week, the S&P 500 recaptured that level on Thursday, jumping more than 1%. Now the index is now less than 1% away from reclaiming all of the losses stemming from Monday’s decline.

Equity ETF flows
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