Why Did Solar Stocks Get Clocked?

Firing up my watch list yesterday, I noticed a trend among the day's biggest decliners. There they quivered: solar stocks of every stripe, from Chinese champ Suntech Power (NYSE: STP  ) to string-ribbon specialist Evergreen Solar (Nasdaq: ESLR  ) to arguably moatless Akeena Solar (Nasdaq: AKNS  ) . In all, solar stocks accounted for 14 of the 15 biggest losers on my screen. Unbelievable!

Had six brokerages just downgraded the entire sector? Did Google (Nasdaq: GOOG  ) develop its coal-beating energy technology already? Did the sun explode?

None of these things occurred, as far as I know. Now, I would love to tell you specifically why solar hit the fan yesterday. But there's no simple, causal explanation for it. I'm sure some other stringer will be happy to piece together a narrative for you. But for now, let's stick to the bigger picture.

If we're not already in a recession, many of us are certainly bracing for one. A rather Foolish reaction to this dire-seeming situation is ... who cares? The shares of financially strong companies can perform well enough in lean years, so if you're investing wisely, you should be sleeping easily.

But recessions can also be rather bad for your average stock, very bad for growth stocks, and uniquely bad for speculative growth stocks. Fellow Fool Jim Gillies, calling out First Solar (Nasdaq: FSLR  ) in particular, recently suggested that solar stocks like this belong in the third pile.

You can make a case that these companies' high growth rates won't suffer as a result of a broad economic downturn. You might also argue that the occasional violent sell-off is an overreaction and a buying opportunity. But to my mind, yesterday's sharp, broad-based decline in the solar group reinforced the existence of a speculative component built into these companies' share prices. While there's never a good time to overpay for a stock, this is a particularly bad time to do so.