Shares of several high-profile renewable energy specialists — including Enphase Energy (NASDAQ:ENPH), SunPower (NASDAQ:SPWR) and Sunrun (NASDAQ:RUN) — are skyrocketing on Thursday. Naturally, the question on everyone’s mind is direct and to the point: Why are solar stocks up today?
Fundamentally, the core catalyst today stems from Federal Reserve Chair Jerome Powell. In a conspicuous pivot away from the central bank’s hawkish monetary policy, Powell seems to have warmed to the idea of future interest rate cuts. Subsequently, the disclosure is sparking upside momentum in the equities market as well as the always risk-on cryptocurrency sector.
However, the renewable energy sector is particularly benefiting from the Fed’s recent press conference. As Bloomberg noted last month, one of the culprits behind substantially reduced demand in the solar industry has been spiked borrowing costs. That has been a major reason why many solar players are now seeing double-digit growth on Thursday; Powell acknowledged the unnecessary dangers of keeping rates too high.
“We’re aware of the risk that we would hang on too long,” Powell stated during the press conference. “We’re very focused on not making that mistake.”
Likely undergirding this pivot from the Fed is encouraging data on disinflation. As The Wall Street Journal points out, for more than a year, Powell warned that the Fed would raise rates as much as necessary, even if that meant ushering in a recession.
Why Are Solar Stocks Up Today? Fed Gives an Early Gift.
To be clear, the Fed did not outright promise interest rate cuts. “It is far too early to declare victory, and there are certainly risks,” Powell said. Nevertheless, the Fed Chair also acknowledged “a general expectation” that rate cuts are on the horizon. Thus, the thawing of the monetary policy ice is helping bolster solar stocks today.
Of course, other headwinds have aided the deterioration of demand for companies like Enphase and SunPower. For one, an oversupply of solar equipment contributed to a sector-wide price deflation. In addition, “sharply reduced state-level incentives in California” — solar’s most important domestic market according Bloomberg — leveled the ecosystem as well.
Still, higher rates have done absolutely no favors for residential renewable energy projects. After all, companies involved in the renewable energy space depend heavily on the debt market:
Specifically, these firms often take out large loans to build projects and then pay them off over time with the money that consumers pay for the electricity those turbines or panels produce. When debt is expensive, projects take longer to pay off — and likely offer smaller profits to investors.
With this troubling dynamic possibly about to reverse, though, investors are jumping back into the deflated solar arena. That’s the key catalyst behind the question of why solar stocks are up today.
Why It Matters
For many solar stocks, this news couldn’t come soon enough. For example, analysts have grown pensive or even skeptical about Enphase and ENPH stock in recent days. Even worse, SunPower only carries a consensus hold view with an average price target of $4.93 per share, implying almost 20% downside risk.
On the date of publication, Josh Enomoto did not hold (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.
