Shares of fuel cell stocks had a rough start on Tuesday before recovering a big chunk of their losses for the day. Bloom Energy (NYSE:BE) dropped 13.5% early, only to close the day down 1.1%, while Ballard Power Systems (NASDAQ:BLDP) fell 15.7% before closing down 1.8%, and FuelCell Energy (NASDAQ:FCEL) lost 22.3% of its value before closing 3.9% lower. It was a wild day, but there wasn't a lot that really happened.
The first impact on energy stocks this morning was a drop in oil prices. You can see in the chart below that oil prices dropped just before 10 a.m. EDT, and fuel cell stocks exaggerated that move by a wide margin. As oil recovered, so did the stocks.
It didn't help that growth stocks also had a bad day, with investors selling off stocks that have typically performed well over the past year. Bloom Energy, Ballard Power, and FuelCell Energy certainly fall into that category.
And the general market concern over rising interest rates has impacted fuel cell stocks more than others on the market. Large fuel cell installations, particularly commercial and industrial-scale projects built by Bloom Energy and FuelCell Energy, are often financed partly with debt. So as rates rise, the cost of electricity from these projects effectively goes up.
Add all these factors together and you have a recipe for a down day for fuel cell stocks. But as oil prices recovered and the market overall bounced back, so did these stocks.
There wasn't any news out today that should make investors change their long-term investment thesis for fuel cell or hydrogen stocks. There's still a huge opportunity in the power grid's transition to renewable energy, and these companies have a big role to play. The uncertainties about how big the market is and how quickly the transition will take place haven't changed in the last 24 hours.
What investors should keep an eye on are interest rates, which could be a long-term drag for both renewable energy deployment and fuel cell adoption. If rates continue to rise or inflation strikes in the U.S., investment in fuel cells on a large scale could slow dramatically. The Federal Reserve has said rates won't rise for the foreseeable future, so I don't think the risk is high, but understanding why higher rates are bad for fuel cell stocks is important on days like today.