Investors are generally in a good mood, and many stocks are in the green. But why are solar stocks up today by 10% or more? This isn’t an everyday occurrence, and there might be an intriguing investment opportunity here.
Check out some popular solar stocks like Enphase Energy (NASDAQ:ENPH), Solaredge Technologies (NASDAQ:SEDG) and Sunrun (NASDAQ:RUN). You might be amazed to see that they’re up by double digits.
There wasn’t a solar energy deal in Congress or anything like that. However, there is a connection here to a government entity, the Bureau of Labor Statistics (BLS). Some data points from that agency can help investors understand what’s happening with solar sector stocks today.
Why Are Solar Stocks Up Today? Check the CPI for Clues
Here’s what’s moving the markets, including solar stocks, this afternoon. The BLS just released its data for October’s U.S. Consumer Price Index (CPI) this morning. Economists expected the headline inflation rate to increase 0.1% month over month (MoM) and 3.3% year-over-year (YoY).
As it turns out, October’s CPI was flat MoM and only rose 3.2% YoY. That’s not vastly better than expected, but evidently, it’s enough to bring a sense of relief to a jittery market.
Furthermore, October’s core CPI (which excludes food and gas) only increased 0.2% MoM and 4% YoY, whereas economists had predicted 0.3% and 4.1%, respectively. In other words, inflation generally came in softer than expected.
Soon after this data was released, the 10-year Treasury bond yield dropped from 4.6% to 4.45%. Clearly, now that inflation seems to be cooling, the market expects the Federal Reserve to ease up on interest-rate hikes and possibly even start cutting rates.
Solar businesses are often debt-heavy, and high borrowing costs have put pressure on these companies. Moreover, solar sector businesses have to pay for a variety of raw materials, and if inflation is easing, then these companies should be able to source materials at lower price points. Besides, generally speaking, falling bond yields tend to inspire stock investors’ confidence in clean energy companies.
Is It Time to Invest in Solar Stocks?
Now, the sudden rally in solar stocks like ENPH, SEDG and RUN makes sense. These companies can improve their capital positions and get easier access to raw materials when interest rates are lower.
Therefore, it’s not a terrible idea to consider small share positions in Enphase Energy, Solaredge Technologies, Sunrun, or even all three of them. That way, you can diversify your portfolio and get some exposure to a beaten-down sector that appears to be in recovery mode.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
