Investors are always looking for a “can’t miss” secular theme, one where they can position capital and basically “set it and forget it.” So far, almost every sexy growth theme that has enjoyed market tailwinds is now up and will most likely be tested again, due to the prevailing uncertainty and lack of clarity.
It is now hard to find a technical guru who would tell you the market isn’t overbought on a short-term basis. Looking at the S&P 500, the near-term technical indicators — like money flow, stochastics and MACD — are pinging at the high end of their respective ranges, implying that more positive news on the trade front may be imminent. The market is rapidly pricing in a blanket 10% base tariff rate along with higher (20% to 30%) levels for India, China and other nations where tariffs on U.S. imports remain high.
For chartists, this is either going to be the mother of all “V-Bottom” formations — where the market doesn’t look back — or history will find a way to repeat itself to where the S&P will pull back to around the 5,400 level on a lack of bullish news that is not already priced in the market, providing investors with another compelling entry point to initiate and add to existing positions. The swing in sentiment has been incredible, and there is no reason to think that this fresh bullish tone can’t be tested over the near term.
The notion that President Trump’s tweet of “80% tariffs on China seems about right” is way out of line as to the eventual reality of where this deal will land — and the market knows this, as the steady diet of dialing back the severity of tariffs by Trump has become the latest set of bullish injections to bolster the stock market and his ratings. And leave no doubt — Trump is all about lifting his current ratings.
So where does this leave investors, now that the major averages have rebounded back to within a few percentage points of the February highs? When looking at the stock charts that matter, two outcomes predominate. Either the market trades laterally on hopeful optimism that all is better than originally thought, and stocks consolidate their overbought condition and set new all-time highs based on a 10%-15% tariff tax access to U.S. markets, tame inflation data and a big and beautiful bill that gets passed; or the market undergoes a retest of the recent lows because these expectations don’t play out favorably.
With this see-saw mentality so prevalent, investors looking at solid investment themes robed in Kevlar might want to consider a meaningful portfolio weighting in United States-based electric power infrastructure for growth and income. The big picture story surrounding the power grid in America continues to gain traction as a highly compelling investment theme. The current national grid is undergoing huge transformational changes and upgrades of capacity to not only modernize electric systems, but also provide for future needs of AI and onshoring of manufacturing demands for a soaring new power supply.
Natural Gas Is the Key to Powering Grid Expansion
The long-term shift to electric vehicles and clean energy is increasing the strain on the grid, to the point where experts warn that the United States grid is not prepared for this surge, and further major infrastructure upgrades are needed to avoid reliability issues. Hence, the desire for more renewable energy is up against the reality of meeting the immediate demand for more power by way of expanding the use of natural gas, which is clean, cheap, abundant and a major domestic resource, not making America reliant on imports.
Some of the key factors driving electric demand include AI workloads, which could push data center electricity consumption from 4.4% of total U.S. electricity needs in 2023 to 12% by 2028. Utility spending on grid infrastructure has been steadily increasing. In 2023 alone, capital investment in electric transmission systems reached $27.7 billion, nearly tripling since 2003. Investment in distribution infrastructure, which delivers electricity to end users, has also surged, with spending rising $6.5 billion.
The big winner in the current generational upgrade of America’s electric grid buildout and conversion is natural gas. Natural gas utilities can be built and activated significantly faster than other energy sources, like wind and solar. In 2022, the construction cost for natural gas-fired power plants was $820 per kw, while solar power cost $1,588 and wind cost $1,451. This translates to shorter construction timelines.
Another challenge is that the current United States electric grid is highly fragmented and lacking coordination and cooperation among the dominant electric utility companies. Electric utility companies in the United States are often fragmented and uncoordinated due to a mix of regulatory, economic and structural factors. One major issue is that transmission planning is split between regional transmission organizations (RTOs) and local utilities, which often operate independently without considering broader system needs. This leads to inefficiencies, higher costs for consumers and slower development of high-voltage transmission projects.
Additionally, the United States power grid is divided into three separate interconnections — the Eastern, Western, and ERCOT (Electric Reliability Council of Texas), each functioning almost entirely in isolation. This lack of interregional coordination makes it harder to respond to extreme weather events and grid stress.
Another challenge is the monopoly model in many states, where utilities are granted exclusive control over electricity generation and distribution. While this was originally meant to ensure stability, it has led to higher costs and less competition, particularly as renewable energy mandates increase in some states.
The future involves a national smart grid, where all major utilities talk to each other, and do business with each other. When there is a brownout in New York, power is made available by other networking partners through a highly automated transmission and distribution system that utilizes all forms of energy.
This future provides an amazing opportunity to bolster investor portfolios by being invested in the right companies, the right stocks and the right funds. In a market marked by uncertainty, lack of clarity and geopolitical tension, the buildout of America’s smart grid to double and triple its capacity over the next decade is a back-up-the-truck type of secular investment theme that is essential to the very existence of the domestic economy, implying that well-run companies transforming the United States grid should outperform.
And if the market backs-and-fills, as chartists predict, consider committing a larger portion to this sector.
