What happened
Solar energy stocks had a good day for change on Tuesday as the market rose in technology and growth stocks. The market decision was a reaction to Russia’s withdrawal of some troops from the Ukrainian border and the possible opening of diplomatic talks.
Enphase Energy (NASDAQ:ENPH) rose 7.6% in today’s trading, sunrun (NASDAQ:RUN) jumped 10.3%, and JinkoSolar (NYSE:JKS) jumped 13.3%. The three stocks ended the day up 7.2%, 8.9% and 12.9%, respectively.
Image source: Getty Images.
So what
Solar stocks are typically very volatile, so when the market goes up or down, moves are amplified in solar stocks. Today the S&P500 closed up 1.6% and the Nasdaq Composite rose 2.5%, which is probably a big driver for solar stocks today.
Another notable move in the market was oil prices falling 3.6% to $92 a barrel as tensions with Russia eased. Falling oil prices have generally been viewed as a bad thing for solar stocks, but that trend has not continued today.
Another potential hurdle was rising interest rates. In the US, 10-year government bonds rose six basis points to 2.04%, continuing a steady rise over the past year. Higher interest rates mean higher borrowing costs for solar developers, which can make solar energy less competitive in the market. Normally when rates rise, solar stocks fall, but again the market moved in the opposite direction today.
Now what
Most of today’s moves can be attributed to the bullish market and the drive in solar stocks. If you look at the three-month chart below, you can see that solar stocks have been hit much harder by the recent selloff than the market as a whole, and that’s helping to recoup some of those losses.
Long term, the growth story is still intact for solar stocks as the industry takes market share from fossil fuels and costs continue to improve. But rising interest rates will be a headwind that project financiers will have to contend with. The initial cost of building solar power plants will not change, but the price of electricity needed to make them profitable may increase as interest rates rise.
On the commodity side, I wouldn’t pay attention to oil or even natural gas prices because they have minimal impact on solar projects. And overall, fossil fuel prices have trended higher as the economy improves.
Today’s decision may just be volatility, but the decline in solar stocks over the past few months could be a buying opportunity for investors, and Enphase, Sunrun and JinkoSolar are three leaders who will be winners in the long run.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.
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