New inflation data has the stock market showing red today. But it was especially bad news for some companies, and Plug Power (PLUG 1.26%) is one of them. That's why Plug shares plunged as much as 10.7% Tuesday morning. As of 11:30 a.m. ET, Plug Power shares remained down by 9.7%.
Today's action reverses what had been a nice upswing in Plug Power stock. Over the last month, shares in the hydrogen fuel company have moved higher by almost 20%, even with today's decline.
Interest rates will be higher for longer
The Consumer Price Index (CPI) data released today indicated higher inflation sticking around longer than many investors and economists have predicted. Many thought the Federal Reserve would begin a cycle of lowering interest rates early this year, but that is now doubtful. In fact, today's data has some thinking rates may stay higher well into 2024 before the Fed takes any action to lower them.
The CPI rose 0.3% in January, the Bureau of Labor Statistics reported today. That translates to a 3.1% inflation rate, which was down from 3.4% in December. But it was still unexpectedly high, as economists on average predicted a 2.9% rate. That's not what investors in money-losing, speculative companies like Plug Power want to see.
Not an inflation investment
During times of inflation and higher interest rates, investors flock to investments including commodities, bonds, and value stocks. They sell stocks in companies that will have to endure higher costs of capital. Plug Power has some positive momentum in the business right now. In the last two weeks it began hydrogen shipments from its new Georgia green hydrogen plant and its Tennessee facility.
But persistently high interest rates will cost the company as it will need to raise fresh capital. Its cash and cash equivalents levels have dropped from about $690 million at the end of 2022 to just about $110 million on Sept. 30, 2023. Investors are shifting out of names like Plug Power today, and there could be more downside ahead until lower interest rates are in sight.
