Since mid-2022, the clean energy sector has faced significant challenges, struggling with rising yields. Higher yields have translated into increased financing costs for clean energy companies, which heavily rely on loans to fund their projects. As a result, 2024 is another challenging year for the clean energy sector, with a year-to-date loss of 9.61% before last week, as of July 5th.
Impact of Falling Inflation
However, recent positive inflation data has brought a glimmer of hope. The US Consumer Price Index, a measurement of the average change in prices for a commonly purchased basket of goods and services, dropped 0.1% from May. The annual rate of inflation fell faster than expected to 3% from 3.3% in May. This development has sparked market anticipation of potential rate cuts by the Federal Reserve in September. The yield on the 10-year US Treasury decreased by 9 basis points, from 4.28% to 4.19%.
Market Response to Anticipated Rate Cuts
Clean energy stocks have responded positively to the prospect of lower financing costs. Alternative energy ETFs saw a notable gain of 4.54% over the second week of July, while solar energy ETFs surged by 10.06% in the wake of the US core CPI.
Notable ETF Performances
Among the top-performing ETFs, the iShares Global Clean Energy ETF (NYSE:XLE) (DNRG) and the Invesco Solar Energy UCITS ETF (LON:ISUN) (ISUN) gained 4.95% and 10.14%, respectively. These gains reflect the market’s optimism about the potential easing of financial pressures on clean energy companies.