Renewable energy stocks bounced back this week after getting some potentially positive news about interest rates and the energy market. While the bounce was good for investors, it wasn't driven by earnings or fundamental changes in supply and demand, but rather speculation that we're finally hitting bottom in the industry.
According to data provided by S&P Global Market Intelligence, shares of Bloom Energy (BE -5.88%) jumped as much as 14.9%, Sunrun (RUN -2.08%) was up 19.7%, and JinkoSolar (JKS -1.09%) popped 12.5%. Shares of the three stocks closed the short trading week up 13.9%, 16.1%, and 12.3%, respectively.
The Fed strikes again
Interest rates have been a huge focus for renewable energy companies because projects are often financed over multiple decades. When rates rise, it makes projects less economical, so the last couple of years of rising rates have hit the industry hard.
That's why investors were excited to hear Fed Chair Jerome Powell say that inflation was "along the lines" of what the Fed expected, indicating short-term rate cuts could be coming in the next few months. The Fed doesn't control long-term rates, but the U.S. government 10-year bond has fallen 63 basis points over the past year as investors have anticipated rate cuts.
Whether or not short-term rates come down, it appears that long-term rates are stable or declining, which should be positive for renewable energy projects long term.
Are tariffs on the horizon?
The other big news item was Treasury Secretary Janet Yellen said in a speech that China is dumping renewable energy components and electric vehicles on the rest of the world. This includes everything from solar panels to lithium-ion batteries.
Over the past decade, the U.S. has used tariffs to try to limit the impact of Chinese subsidies and "dumping," a term used to describe selling excess products at an artificially low price in international markets. However, the impact of potential tariffs is unknown.
U.S. producers like Bloom Energy could benefit if competitive products like Chinese batteries are limited in the U.S. market. But Sunrun could see costs rise if it can't benefit from lower-cost solar panels coming from China.
JinkoSolar, who built its business on manufacturing in China, has diversified its supply chain, including a plant in Florida that's been operational since 2018.
Finding a bottom
Fourth-quarter 2023 earnings and conference calls indicated companies were anticipating a return to growth in the second half of 2024, which is now only three months away. If that happens, the market could turn positive in anticipation of better results. And you can see below that shares of all of these companies have been decimated over the last three years.
That's why investors are speculating about a recovery now before the recovery actually takes place.
I'm generally bullish on renewable energy long term, but the companies involved face intense competitive pressure. If the market does turn a corner in the second half of the year we may see a jump in shares, but that's far from certain and I would expect volatility along the way.
