Shares of renewable energy stocks fell across the board on Tuesday as a number of factors hit the industry. After a strong run in the last month, and even better performance over the past year, it may have simply been time for stocks to take a breath.
There were a number of notable moves, but the ones that caught my attention were Stem (STEM -1.21%), ReneSola (SOL -5.39%), Sunworks (SUNW 9.61%), and JinkoSolar (JKS 3.29%) dropping big today. Here's where they were at their lows today and how they closed the day.
|Stock||Change at Daily Low||Change at Close|
The first reason renewable energy stocks may be falling back today is simply because they've been on a tear over the past month. You can see below that all four of these stocks are up double digits, even after today's drop, and a pullback is a natural part of the trading cycle.
Traders were also likely looking at opportunities in energy stocks and as of this writing, oil is up 1.9% today to $72.25 per barrel of WTI, a level we haven't seen in two and a half years. Higher oil prices can sometimes be good for renewable energy stocks, but investors may be piling back into fossil fuel stocks. Some evidence is ExxonMobil (XOM 1.84%), Chevron (CVX 1.30%), and Royal Dutch Shell (RDS.A) all trading higher today, despite the market falling overall. For now, the rotation away from fossil fuels to renewables appears to be moving in reverse.
The other broad fear that investors may be feeling today is inflation and the potential for rising interest rates. Rates weren't up much today, but JP Morgan (JPM 0.90%) CEO Jamie Dimon said his company is sitting on half a trillion dollars in cash and waiting for interest rates to rise before investing it.
Most renewable energy projects rely on low interest rates to be profitable because they're a high upfront capital investment that pays off over the course of many years or decades. Lower interest rates increase the current value of those future cash flows, so even the whiff of inflation or higher interest rates can send renewable energy stocks lower.
Simply put, volatile days like this are part of the price of admission for renewable energy stocks. The entire industry can swing wildly on little more than the threat of higher interest rates or the daily moves of oil. But long term, the industry's trajectory is still toward more installations and growing revenue, so investors shouldn't panic.
What I would keep an eye on is interest rates and how they affect the borrowing cost for renewable energy developers long term, and how earnings are trending. We'll start to get earnings from renewable energy companies in a little over a month from now. For now, I see no reason to panic with any of these big moving renewable energy stocks.