A Self-Inflicted Energy Crisis, Revenge of the EVs, and the Gamification of Markets

Dear Clients and Friends,

Had I written my quarterly newsletter a little sooner, it would have been against a decidedly more negative backdrop for markets. I guess it pays to procrastinate sometimes. By April 1, the market was underwater 4% year-to-date. Unbeknownst to all but the crystalballers and the overconfident, the market was already in recovery from its 2026 low (so far) of -7% for the S&P 500 and -11% for the tech-heavy NASDAQ. Fast forward to May 1 and the S&P 500 is sitting near all-time highs and is up 6% for the year.

Why the change in sentiment? The honest answer is “who knows,” but there is a convincing case to be made for what happened on the mother of all TACO Tuesdays when the president decided to unilaterally declare a ceasefire with Iran on April 7. While that in no way brings the war to a close, it does move it to a backburner in terms of it going from a shooting war to a who-blinks-first staredown over how long the Strait of Hormuz can stay closed. That has allowed the markets to get back to what they were doing before the Iran war, which is to celebrate AI all day, every day. 

My gut tells me, “not so quick,” all is not well and it wouldn’t take much to slide back into a shooting war. But even if that doesn’t happen – and hopefully that is the case – the collateral damage of 20% of the world’s oil output, 20% of fertilizer exports, 33% of helium production, and 46% of the urea trade going offline, will have serious knock-on effects, most of which have not been felt yet. Oil tankers move at bicycle speed (though they don’t tire) and their absence in East Asian ports is just starting to be felt. 

The supply disruption is of a scale and duration that makes it difficult to see how that will not be inflationary. It was telling that at the last Fed meeting, two voting members of the FOMC – the body that sets interest rates – suggested that a rate increase might be needed in light of energy supply shocks and inflation expectations that may drift higher if the Fed’s seen as not being serious about taming inflation.

Even if we can explain the market’s rapid recovery in hindsight, the speed at which that happened is still quite remarkable. A similar scenario played out in April of 2025, when the tariff scare subsided. One factor that was in play both this year and last, was that the shocks were policy-driven, not systemic, and therefore reversible. Also, absent the policy shocks, the economy was doing just fine in both cases. Another more structural factor is that investment flows have become skewed towards retail investors, who are less hesitant and more impulsive than institutional investors and tend to be committed dipbuyers. It makes market timing an even more fraught endeavor, as the market in its current form affords you little time to get back in once you are out.

The Market Leaderboard

There has been some movement in the 2026 leaderboard, with US stocks moving off the bottom of the table to just out of medal contention and gold slipping to bronze. Emerging Markets is leading the pack by a wide margin. Will it hold? Unknowable. But a diversified portfolio continues to trounce a 60/40 US stock/bond portfolio as the year marches towards its halfway point.

Source: Y-charts.

EV Takeover

Obama’s first term was a boon to gun manufacturers, as (would be) gun owners rushed to stock up, fearing stricter gun laws. Similarly, Trump 2.0 may turn out to be a real catalyst for EV adoption. First, sales spiked in 2025 as consumers rushed out to buy an EV before the sunsetting of the $7,500 new EV and $4,000 used EV tax credit. 6 months later, EV demand picked up again, as high gas prices reminded consumers of the alternative, as confirmed by an array of sources from used car platforms, to TIME magazine, to analyses of online search terms, all reporting increases of interest in the 12-28% range. Not all of that will translate into sales, but some of it will. As EVs become more ubiquitous and people are exposed to what most would consider a superior driving experience, the growth will feed on itself. In Asia and Europe the shift is even more pronounced – and was already in full swing before the war –  with the outlier country of Norway reporting a mere 465 gas powered cars sold in 2025, equivalent to 0.27% of new car sales.

How to invest in EVs? The first thing to note is that investing in a high growth market is not necessarily a profitable proposition in and of itself. You need high profit margins and high barriers to entry to earn excess profits over time, which is what makes growth investors win. The technology itself is not as important, even if it is exciting. All things equal, however, you are better off as predator than prey and investing in car companies that are slow to transition to an electric transportation infrastructure, might be a losing proposition.

There’s Tesla, of course, but what other EV plays are out there? Personally, I don’t think the traditional OEMs are the ticket. To be sure, some will take market share (and profit share) and there could be interesting names amongst them. However, as an industry, I do not see why they would be more profitable than they were before the dawn of the EV. Furthermore, sales outside of Europe, the US and Japan, will have to contend with the ascending Chinese car companies, which are actually ahead from a technology perspective and also have an almost unassailable cost advantage. 

What could be interesting, however, is the battery and infrastructure side. Particularly, solid state batteries could be a game changer. If that foundational component of the EV ecosystem is consolidated by a small number of early-entry suppliers, that could potentially make for a very rewarding investment. I have dipped my toe in the water with Quantumscape (QS) and. SolidPower (SLDP). It’s been a losing proposition so far. To be sure, pre-commercialization, publicly traded companies are a risky bet any way you slice it. That being said, they have promising pilots with Volkswagen Group and BMW, respectively. Quantumscape’s most recent milestone is the Ducati V21L motorcycle, which only exists as a prototype. It is very light and can charge from 10-80% in 12 minutes. That’s 3-5x faster than what is commercially available in electric motorcycles and the math for cars would be similar. Perhaps there are other components of the EV ecosystem that are prime candidates for profitable investment, but to me the battery system seems the obvious place to look.

A Nation of Gamblers

“Every gambler knows
That the secret to surviving
Is knowing what to throw away
Knowing what to keep
‘Cause every hand’s a winner
And every hand’s a loser
And the best you can hope for
Is to die in your sleep”

Kenny Rogers

Ok, I disagree with Kenny on the best you can hope for, but he certainly nails the essence of gambling: it is a zero-sum game. You win and someone else loses and often it is the other way around. Who always wins? The house (yes, we all knew that). Gambling has been part of being human since the dawn of time and lecturing people about the futility of it, is the last thing I am interested in. However, something has shifted in our society, coinciding with the pandemic, when gambling started pervading all aspects of life. It affects me (and my clients) because it has also infected all aspects of investing.

A recent headline story paints the picture: U.S. Special Forces soldier Master Sgt. Van Dyke was indicted after allegedly using classified information about the U.S. mission that captured Maduro to place a series of well-timed bets on the prediction market Polymarket. Prosecutors say Van Dyke wagered about $33,000 on Maduro’s removal in the days leading up to the raid—bets that paid out more than $400,000 once the operation succeeded. Maybe this was a one off, but it’s unlikely. A fish stinks from the head down. Now, if gambling markets are rigged, I personally won’t lose sleep over that, if it weren’t for the fact that the collateral damage affects more than just the gambler. Can we trust sports results, free throws in basketball, votes in Congress, and stock price movements reflecting all publicly available data and nothing more?

Is the gamification of investing and the ascendance of the gambler’s mindset disrupting the wealth creation machine that has been the stock market? For me it comes down to the question “are you an investor, or a trader?” The latter is transacting in a zero sum game, where every hand is a winner and every hand is a loser and the best one can hope for is to be smarter than the other side of the trade. Of course, the trader on the other side hopes for the same. This was always a risky proposition. Now the trader has to increasingly wonder what insider information the other side is privy to.

How does it affect the patient investor? For one, it erodes trust. There has always been a healthy amount of skepticism among the investing public, that the stockmarket is a rigged game. It percolates from time to time in client conversations and it is resonating more and more. This skepticism, well-founded, keeps money in cash or other suboptimal investment allocations, which, in turn, detracts from long-term results.

In addition to the erosion of trust, long-term investors like ourselves, can not be sure that the stocks they are buying (or selling) trade primarily on publicly available information. It makes it harder to judge whether something is overpriced or undervalued. However, the investor has a secret weapon not available to the trader: time. The key to long-term investing is “time in the market,” not “timing the market.” The investor has time on her side, needing to eventually be right, but not in the moment. Or said differently: the investor is long on time, the trader is short on time. Surely the former is a much better “bet,” for most people.

As of this writing, spring in Oregon is in full bloom and at the moment it feels more like summer. Pool time has arrived and our mudroom is decidedly less muddy, though still littered with cleats, shinguards and way too many kids’ shoes strewn about. I like this rejuvenating time of year and I hope you, my dear reader, are catching some of that spring fever too.

Kindly,

Jan P. Schalkwijk, CFA – JPS Global Investments