What happened

Solar stocks had another outstanding day on Friday, capping off a great week for the industry. Shares of JinkoSolar Holdings (NYSE:JKS) rose as much as 16.7%, Canadian Solar (NASDAQ:CSIQ) was up 13%, and SunPower (NASDAQ:SPWR) was up 12.3% at its peak. The three solar energy stocks closed the day up 10.2%, 8.8%, and 3.7% respectively.

The move comes on a day that the Dow Jones Industrial Average and S&P 500 are down just under 1%, so solar stocks are bucking the market's move today.

Sunlight glints off a roof with solar panels on a sunny day.

Image source: Getty Images.

So what

The biggest news in solar energy continues to be Congress pushing forward a stimulus package that could include an extension of tax credits for solar energy projects. There have been some minor sticking points in the negotiations, but Congressional leaders are optimistic that a deal will be made soon.

One of the sticking points today was an impasse over an effort to block some Federal Reserve lending programs starting in 2021. The size of stimulus checks also appears to be up for debate. But with a potential government shutdown on the horizon if a deal isn't passed, there's plenty of incentive to get a stimulus package done in the next few days.

Why does this affect solar stocks? First, there's a lot of speculation that an extension to the solar tax credit will be included in the package, and that would be fuel for solar developers over the next few years. Second, if the Federal Reserve can keep rates low and markets calm, it would help lower financing rates for solar energy projects. That effectively lowers the rate that developers can bid electricity into the market, and lower prices obviously mean more growth potential.

Now what

The news of the day isn't necessarily new for solar energy stocks, but momentum has continued from earlier in the week. Investors are speculating that a final stimulus package will ultimately help solar energy developers, a surprising development because it comes before President-elect Joe Biden even takes office. There's also no indication that the Federal Reserve won't keep rates very low for the foreseeable future.

When an industry like solar energy gets momentum, it can push stocks higher very quickly. That's what has happened this week, and today is a continuation of that move more than anything. In 2021, solar companies will have to back up this bullishness with growth and better operating results, but if subsidies kick in, the industry could be in for an outstanding year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning 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 richer.