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Staying nimble as energy policy pivots

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Market take

Weekly video_20250527

Hugo Liebaert

Sustainable Research and Analytics, BlackRock Investment Institute

Opening frame: What’s driving markets? Market take

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Globally, policymakers are balancing energy security, reliability and affordability with environmental goals. That task is getting trickier as mega forces drive power demand.

Title slide: Staying nimble as energy policy pivots

1: Has clean energy hit its lows?

Thanks to cheap valuations and the promise of AI-driven growth, U.S. clean energy stocks have outpaced traditional energy since April after struggling for years. Yet we’re skeptical of a rally as the U.S. legislative debate over domestic energy policy continues. 

2: Shifting sentiment on nuclear

The latest revisions to the U.S. Inflation Reduction Act kept tax credits for nuclear project developers. That’s a win for big U.S. tech companies that champion nuclear as a power source for AI.

And last week, Germany ended its aversion to the EU adopting nuclear power. Most EU nations have turned supportive in recent months. That may lift Europe’s competitiveness that’s been dampened by higher energy prices.

3: Policy shifts in traditional energy

Historically, OPEC+, a group of petroleum producing countries, has sought to keep oil prices up to fund government initiatives. Yet even as prices have fallen, OPEC+ has continued to increase supply.

If that shift sticks, it has a lot of consequences. Lower oil prices make clean tech like electric vehicles seem less attractive and could further slow adoption. Lower prices also mean consumers pay less at the pump. That’s a political win, but if prices get too low, it jeopardizes U.S. oil.

Outro: Here’s our Market take

Growing power demand has policymakers rethinking how to balance energy sustainability, affordability and security. We see opportunities in nuclear, U.S. natural gas and EU renewables, especially solar and batteries.

Closing frame: Read details: blackrock.com/weekly-commentary

Tracking energy policy pivots

With global energy demand surging, many governments are recalibrating their energy policies and making waves in markets – but changes vary by region.

Market backdrop

U.S. stocks fell last week over higher bond yields and threats of new U.S. tariffs. We focus on actions over words as economic constraints spur policy rollbacks.

Week ahead

U.S. PCE inflation this week is unlikely to reflect the full tariff impact, similar to the April CPI. But we see tariffs and a tight labor market keeping inflation sticky.

Proposed revisions to the U.S. Inflation Reduction Act are the latest in a wave of global policy changes as governments balance energy security, reliability and affordability with environmental objectives. That task is now trickier as mega forces – like power-hungry AI and geopolitical fragmentation – and electrification in some markets drive up energy demand. We see recent policy pivots causing volatility and unlocking regional opportunities, requiring investors to stay nimble.

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Beaten up renewables
U.S. energy equity performance, 2019-2025

The charts show how, after a 2021 surge, U.S. clean energy equities dropped off – yet in recent months have ticked up, eclipsing traditional energy.

The figures shown relate to past performance. Past performance is not a reliable indicator of current or future results. Index returns do not reflect fees, costs or expenses. Indices are unmanaged and one cannot invest directly in an index. Source: BlackRock Investment Institute, with data from Bloomberg, May 2025. Underlying indexes: S&P Global Clean Energy Transition Index for renewable energy, Solactive Global Uranium & Nuclear Components Total Return Index for nuclear and S&P Energy Select Sector Index for traditional.

In the U.S., policymakers want to amp up domestic energy production to power AI and promote national security, but are also looking for sources of tax revenue to fund tax extensions elsewhere. We see clean energy caught in the crosshairs of that balancing act. The latest revision of the House bill, now sent to the Senate, phases out clean energy tax credits in the Inflation Reduction Act sooner. Yet the U.S. likely needs more of all kinds of energy to meet AI’s needs. Industry projections see U.S. data center electricity consumption rising between 50% and 200% by 2030 – a big jump after 15 years of flat national power demand. Where does this leave clean energy stocks? They had been slumping ever since a 2021 surge. See left chart. But since April, they have been eclipsing traditional energy on hopes of limited legislative changes. See right chart. Should investors dip their toe back in now?

In the near term, we think energy and trade policy volatility presents opportunities for stock pickers and we’re watching for fresh policy revisions as the legislation heads to the Senate. Longer term, we see clean energy stocks positioned for strong growth. Renewables are quick to build and valuations are attractive: the factors that contributed to their slump – like high rates and tariffs – are now priced in, we think. AI and national security goals are likely to keep driving demand for all types of power, including nuclear. Last week, President Trump signed executive orders aimed at expediting nuclear power reactor deployment, and the most recent revisions to the House bill preserved the existing tax credits allotted to nuclear project developers. But given how long it takes to build nuclear power plants, we see natural gas and renewables benefiting sooner.

Eyeing shifts in other regions

Nuclear was the topic of another recent about-face in public policy elsewhere. Last week, Germany ended its longstanding aversion to nuclear power, affirming it as a low-carbon source promoting EU energy independence and affordability. Most EU nations are now supportive – a potential boon for its competitiveness, long hampered by higher energy prices. We see opportunities in the electrical equipment chain, grid infrastructure and nuclear power generation. Yet we watch for hurdles. Europe lacks recent experience in nuclear projects – and the few that have happened overran budgets and deadlines.

Policy shifts are also afoot in traditional energy. OPEC+ – a group of petroleum-producing countries – has historically sought higher oil prices to fund government projects. Yet even as prices have fallen, hitting a four-year low in April, OPEC+ has kept boosting supply. Prices jumped last week on reports that Israel might strike Iran’s nuclear facilities. But if prices stay low – and OPEC+ keeps upping production – this would mark yet another sea change. It may signal OPEC+’s efforts to reclaim market share from U.S. shale oil producers. It could slow adoption of electric vehicles, as lower oil prices make clean tech less attractive. It could also confront the U.S. with another balancing act: cheap oil means consumers pay less at the pump, but too-low prices jeopardize U.S. oil. We monitor the June 1 OPEC+ meeting for signs the change will persist.

Our bottom line

Growing power demand has policymakers rethinking the trade-offs between energy sustainability, affordability and security. We see opportunities in nuclear, U.S. natural gas and renewables (especially solar and batteries).

Market backdrop

The S&P 500 fell about 2% last week as worries about new fiscal pressures are pushing up U.S. Treasury yields. The slide was exacerbated after President Trump threatened to levy a 50% tariff on EU imports and a 25% tariff on Apple iPhones not made in the U.S. Yet we focus on actions over words as we’ve seen how economic constraints can spur policy rollbacks. U.S. 10-year Treasury yields ended the week at 4.51%, rising for a fourth week in a row. Japanese bond yields surged.

This week, the focus shifts to U.S. April PCE, the Federal Reserve’s preferred inflation gauge. Soft CPI and producer price data point to easing inflation pressures. But it's too soon to see the full effect of tariff hikes, and we see a tight labor market keeping wage pressures sticky – both leading to stubbornly high inflation. That likely limits how much the Fed can cut interest rates this year. Markets are pricing in two to three 25-basis point rate cuts by year end.

Week ahead

The chart shows that gold is the best performing asset year to date among a selected group of assets, while Brent crude is the worst.

Past performance is not a reliable indicator of current or future results. Indexes are unmanaged and do not account for fees. It is not possible to invest directly in an index. Sources: BlackRock Investment Institute, with data from LSEG Datastream as of May 22, 2025. Notes: The two ends of the bars show the lowest and highest returns at any point year to date, and the dots represent current year-to-date returns. Emerging market (EM), high yield and global corporate investment grade (IG) returns are denominated in U.S. dollars, and the rest in local currencies. Indexes or prices used are: spot Brent crude, ICE U.S. Dollar Index (DXY), spot gold, MSCI Emerging Markets Index, MSCI Europe Index, LSEG Datastream 10-year benchmark government bond index (U.S., Germany and Italy), Bank of America Merrill Lynch Global High Yield Index, J.P. Morgan EMBI Index, Bank of America Merrill Lynch Global Broad Corporate Index and MSCI USA Index.

May 27

U.S. consumer confidence

May 30

U.S. PCE

May 31

China manufacturing PMI

Read our past weekly market commentaries here.

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Meet the authors
Jean Boivin
Head – BlackRock Investment Institute
Wei Li
Global Chief Investment Strategist – BlackRock Investment Institute
Christopher Kaminker
Head of Sustainable Research and Analytics – BlackRock Investment Institute
Chris Weber
Head of Climate Research – BlackRock Investment Institute
Hugo Liebaert
Sustainable Research and Analytics – BlackRock Investment Institute