Renewable Energy Stocks Are Beating the S&P 500
Our theme of Renewable Energy Stocks, which includes U.S.-based solar panel manufacturers, lithium miners and hydrogen fuel cell producers has done far better than the S&P 500, rallying by about 17% year to date.
There are a few reasons for the recent rally in renewable energy stocks. First, the sector has benefited from the overall market trend of investors moving into growth stocks. Additionally, the sector has also been helped by specific news stories, such as the announcement of new government incentives for solar power in the United States. Looking forward, the sector is likely to continue to benefit from the overall market trend of investors moving into growth stocks. However, the sector may come under pressure if the Fed raises interest rates more aggressively than expected.
The Inflation Reduction Act, which includes $370 billion in subsidies and credits for clean energy investment in the United States, was signed into law by President Biden in August. This is seen as the largest-ever investment to fight climate change and could result in considerable private investments into the renewables space. Moreover, second-quarter earnings from many renewable players such as Enphase Energy (ENPH), First Solar (FSLR), and Bloom Energy (BE) were stronger than expected, helping the sector as there has been a rising demand for clean energy products following the disruption in the oil and gas market following Russia’s invasion of Ukraine. There are also increasing uncertainties regarding supplies of natural gas in Europe after Russia has cut off supplies, noting that it would not resume until Western sanctions against the country are lifted.
The solar industry has had a strong year, with two of the biggest players in the space, Enphase Energy and First Solar, up 68% and 57%, respectively. NextEra Energy, one of the largest U.S. utilities by market cap, has been the weakest performer, down 1% year-to-date.
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