Battered Clean Energy Stocks May Soon Recover

Clean energy stocks have been getting absolutely clobbered.

Two indexes that track the sector—WinderHill Clean Energy and S&P Global Clean Energy—have dropped 13.9% and 8.2%, respectively, since the start of the year. From their market peaks of early last year, the WinderHill index has plummeted 54% and the S&P index has declined 39%. (For context, the Nasdaq Composite Index has fallen 9.6% from its high in November.)

The industry has been slammed by a combination of concerns about higher U.S. interest rates, a probable reduction in solar-system subsidies for California homeowners, the broader stock market rotation out of high-growth technology companies and the obstruction of President Joe Biden’s stalled “Build Back Better” agenda by 50 Republicans and two Democrats, Joe Manchin and Kyrsten Sinema. The problems seem to be outweighing any industry boost likely to come from implementation of Biden’s massive infrastructure program, which became law last year.

The result: Clean energy-focused exchange-traded funds have posted huge outflows. About $417 million was pulled from Invesco Ltd.’s $2.4 billion Solar ETF in December, the worst month in the fund’s nearly 14-year history. The $5 billion iShares Global Clean Energy ETF has suffered about $195 million of outflows in the past month, according to data compiled by Bloomberg.

But as evidence of a possible prolonged bear market mounts in this sector, analysts at firms including Morgan Stanley, BNP Paribas Exane and BMO Capital Markets are nevertheless seeing buying opportunities.