Solar energy stocks bounced back quickly on Tuesday as investors piled back into growth stocks. Stocks gained double digits across the board, but some of the more speculative stocks did even better than more established rivals. Sunrun, SunPower, Enphase Energy, JinkoSolar, ReneSola, and Sunworks were among the best performers today. Here's how their performance looked as I'm writing.
|Company||Gain at Today's High||Gain at 1:45 p.m. EST|
|Sunrun (RUN 17.45%)||13.4%||13.2%|
|SunPower (SPWR 9.27%)||14.3%||12.9%|
|Enphase Energy (ENPH 11.96%)||13.5%||11.8%|
|JinkoSolar (JKS 8.37%)||23.2%||23.0%|
|ReneSola (SOL 7.44%)||44.0%||38.3%|
|Sunworks (SUNW 12.86%)||27.2%||23.8%|
While the market's rise today certainly helped solar stocks, there was some industry-specific news that could help shares this year.
The biggest news of the day was that Treasury yields were dropping in the bond market. The 10-year Treasury note had called to a yield of 1.54%, down from a 1.59% yield at the close yesterday. The 10-year is a benchmark that investors use to give an indication of where yields across the bond market are headed.
For perspective, yields are about where they were Thursday of last week, so this isn't a big drop by historical standards. But the fact that the drumbeat of rising rates seems to be slowing is enough to push solar energy stocks like this higher.
Interest rates are important for solar stocks because solar installations are large up-front expenses and decades of small cash flows that generate a payback. In effect, large and small solar projects act like a bond, so higher rates make them less valuable and falling rates make them more valuable. Not surprisingly, solar stocks are climbing as rates fall.
Some perspective is often needed with large moves like this. You can see below that each of these stocks is off sharply so far this year, largely because the 10-year yield has been rising. So, today's bounce is small considering those losses.
Interest rates seem to have become the short-term driver of solar stocks, and they are important, as I highlighted above. But we are coming off historically low interest rates, and a 10-year Treasury around 1.5% is still extremely low and should be a tailwind for the solar industry. That perspective is needed when thinking about how to value solar stocks in this market.
Rather than interest rates, I'll be watching just how quickly these companies are able to grow this year and next in what should be a positive policy environment. Not only are interest rates low, but federal policies should also be more helpful to the industry than the last few years. Combined with the falling cost of solar installations, that could help drive adoption, which should help solar stocks. It'll be a volatile ride, as we've seen the last few months, but solar energy has a very bright future.