Please see below, an article from Tatton Investment Management, analysing the key factors currently affecting global investment markets. Received this morning – 24/11/2025
Ripe for a rotation
Last week ended with lower stock prices and a cryptocurrency sell-off – despite a bump midweek from Nvidia’s better than expected profits (and news that Warren Buffet bought into Alphabet).
Deep divisions at the Fed – likely due to Trump appointee Stephen Miran – have thrown a December interest rate cut in doubt, although quantitative tightening (QT) will stop on Dec 1st, which should ease near-term liquidity pressure. The US economy is itself divided: some fear a rate cut could exacerbate the supposed ‘AI bubble’, but consumer-focussed companies show a weak outlook. US growth will likely come through its soft patch but may need policy support, perhaps from Trump’s promised ‘tariff dividend’.
Bond markets didn’t move much in response to stock volatility, suggesting bond investors see a growth bounce back ahead. The equity sell-off is likely down to profit-taking after a tremendous post-April rally. Investors around worried about fundamentals; they just need liquidity. The nosedive in cryptocurrencies (which are liquidity sensitive) is a clear sign of this. Cryptos could fall further but the knock-on effects to other markets could be muted – since the total crypto market cap, relative to equities, has fallen.
Liquidity will come back in the short-term, thanks to money flowing out of the US Treasury General Account and the reduction in QT. But US policymakers are moving to a lower liquidity provision over the medium-term (‘abundant’ to ‘ample’). That could cause a capital rotation to ‘value’ stocks, as people tend to prefer money now to growth later when there’s not much cash around. If so, there could be greater opportunities for active investors in 2026.
Lastly, a little note on this week’s UK budget: taxes will go up in some form, and the more straightforward the better for the economy. We just hope there’s some relief for small businesses. The government has sent mixed messages in the buildup, but has consistently prioritised a stable bond market. That should keep UK a lid on UK bond yields, which is important for the economy even if it’s uninspiring.
Renewable energy: profitable, not fashionable
The US government is openly antagonistic towards renewable energy and ESG investing. And yet, renewable energy stocks are some of the best performing in 2025. L&G’s renewable energy ETF has outperformed even Nvidia this year and is far ahead of oil companies. Performance isn’t uniform; US fuel cell producer Bloom Energy is up nearly 350% year-to-date while Dutch wind farm specialist Oersted is down 30%, largely thanks to president Trump’s suspension of new licenses. But the sector is doing well, despite political challenges and bearish investor sentiment (investors pulled $5.7bn out of sustainable funds in Q2 alone).
Interestingly, oil and gas stocks have underperformed this year, as Trump’s “drill baby drill” promise isn’t as good for oil profits as hoped. There’s a strong push to upgrade energy infrastructure, but 93% of US energy capacity growth this year has come from renewables. Trump’s removal of future tax credits may have encouraged this, by forcing developers to rush projects. Renewables are also benefitting from the surge in AI capex, with Bloom Energy (which makes fuel cells for data centres) the clearest example. Renewable energy has now become one of the most efficient ways of expanding energy capacity, largely thanks to past investment (like China’s overproduction of solar panels).
ESG investing is in a difficult spot, but the fact renewable stocks are still performing so well suggests we are in a new phase, where the “E” has been spun out as a specific economic theme, rather than a background investment trend. That’s a sign of maturity. When ESG was a growing rapidly, renewable stocks were popular but people doubted their profitability. Now they’re profitable, but unfashionable. That’s ultimately better for the industry’s long-term growth and the energy transition overall. Whatever politicians say, renewable energy is good business.
Why is Britain’s energy so expensive?
Britain has some of the most expensive energy in the world. It’s politically popular to blame this on net-zero targets and ‘green levies’ on energy bills, but these are realistically a small part of overall costs. Wholesale energy costs are by far the biggest component. Britain’s marginal pricing system means national costs are set by the most expensive generator – overwhelmingly natural gas. The energy operator pays all producers the highest price regardless of their costs, which is why UK energy providers (particularly renewables and those involved in grid provision) did so well when gas prices spiked in 2022.
The government plans to reform the balancing mechanism for supply and demand, but has declined to switch to a system where prices vary zonally. Zonal pricing was rejected on the basis that it would be unfair and introduce uncertainty – which is a barrier to investment – but it’s hard to overcome the marginal pricing problems without some zonal pricing, which proponents argue would incentivise energy users moving closer to cheaper sources, and energy producers building closer to high demand areas.
There are also regulatory costs along the chain that increase our energy costs, a key one being how transmission charges are implemented. The government says it wants to reform these, but we don’t know what the reformed system might look like. Removing certain energy taxes would be difficult, as all the talk is that higher taxes are needed to balance the budget. However, recent suggestions that green levies should be scrapped does not have the support of the majority of stakeholders.
Energy costs are a headwind for businesses and prevent international companies setting up in the UK. Reforming the pricing model will help, but it’s likely that the system needs bolder long-term solutions (like investing in better storage or nationalising the expensive marginal producers) than current budget realities allow.
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Marcus Blenkinsop
24th November 2025