Image: BigstockSolar stocks began a massive bull market during the panic lows of the COVID-19 pandemic in March 2020. The Invesco Solar ETF (TAN – Free Report), a basket of solar stocks and a proxy for the industry, rallied for ten straight months from a low of $21.14 to a high of $125.98. However, since then, the sector has melted lower and has retraced back to the $40 range, never recovering from the 2022 equity bear market and suffering from a more “hawkish” Fed.Though solar stocks have been brutal to investors recently, they are worth watching because when they trend, they trend better than almost any other industry on Wall Street. Recently, solar stocks are beginning to show several signs that a turnaround is near and that the next big bull market may be around the corner, including the following.
Potential Rate Cuts
The solar industry is one of the most interest rate-sensitive industries on Wall Street because:
One of the hottest debates and the biggest uncertainty on Wall Street is how the Fed will handle interest rates moving forward. Inflation is stubborn, but growth is slowing. However, Friday’s weaker-than-expected jobs data gave investors a vital clue that the Fed will cut rates this year. The U.S. Fed Fund Futures are pricing in a 78% likelihood of a rate cut in September. A rate cut would be extremely bullish for the industry.
Data Center
AI and cloud projects are causing insatiable demand for energy-sucking data centers. With climate concerns still at the forefront of policy maker’s minds, solar will play an essential role in powering data centers. In fact, a recent Goldman Sachs (GS – Free Report) research report projects First Solar (FSLR – Free Report) has 50% upside due to soaring demand from data center growth.
Insider Buying
Earlier this week, Mandy Yang, the CFO and EVP of Enphase Energy (ENPH – Free Report), purchased more than $400,000 worth of ENPH stock. The sizable transaction shows that insiders have high conviction that the low is in for solar stocks.
Image Source: Zacks Investment Research
IRA is a Long-Term Catalyst
The Inflation Reduction Act (IRA) is less about inflation, and more about clean energy incentives. According to the EPA, “The IRA is the most significant climate legislation in U.S. history, offering funding, programs, and incentives to accelerate the transition to a clean energy economy and will likely drive significant deployment of new clean electricity resources.” The IRA will be a bullish long-term catalyst for the space.
Bottom Line
After years of frustrating action, the solar industry is poised to move higher. Bullish signs include insider buying, lower interest rates ahead, and data center energy demand.More By This Author:Bear of the Day: HertzBull Of The Day: Coinbase Global 2 Top Biotech Buyout Candidates
