Market optimism for rate cuts has sent renewable energy stocks higher over the past three sessions.
The solar and wind energy benchmarks Invesco Solar ETF (TAN) and Global X Solar ETF (RAYS) have jumped 17% and 12% respectively since Wednesday when the Federal Reserve held interest rates steady but projected three cuts in 2024.
The expectation of lower interest rates is a major tailwind for renewable energy stocks going into 2024, as the cost of capital will become less expensive.
“If rates fall in 2024, as our economists and strategists are predicting, we could see a meaningful improvement in clean energy valuations,” wrote Morgan Stanley’s analysts earlier this month.
The prices of solar panels, battery storage, and inverters, which increased over the last couple of years, are also showing signs of deflation ahead.
Solar stocks have gotten decimated this year amid high interest rates spurred by the Federal Reserve to tame inflation. Customers have been reluctant to spend on installations, and companies’ investment projects have gotten more expensive.
A policy change that lowered solar energy incentives in California also impacted the industry in the US. The state slashed the subsidy awarded to rooftop panel owners sending excess power to the grid.
But analysts are bullish on some individual names going into 2024.
Last week Morgan Stanley analysts upgraded solar panel maker First Solar (FSLR) to Overweight, raising their price target from $214 to $237 per share.
“We believe First Solar offers one of the strongest risk-adjusted earnings profiles within our US Clean Tech coverage with its sold-out position through 2026,” Morgan Stanley equity analyst Andrew Percoco and his team wrote in a note to clients, referring to the thin-film module manufacturer’s backlog.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.
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