Back in 2013, an announcement by the Federal Reserve about pulling back on the central bank’s easy-money policies sent markets into a tizzy. Treasury bond yields skyrocketed, junk bond prices fell, emerging-markets stocks tumbled, and stock volatility was off the charts leading to the coining of a new phrase on Wall Street, “taper tantrum.” Investors were expecting a similar scenario after the Fed met at its annual gathering at Jackson Hole in August to discuss tapering of asset purchases.
But alas, the market appears to be taking everything in its stride this time around, with no signs of a violent taper-tantrum in sight. The concept of an end to purchases now appears less frightening to investors after living through the Fed not only slowing down asset purchases but actually reducing the size of its holdings sheet in 2018 and 2019.
But the fact that short-term interest rates have not gone up by much does not mean that all is well. An expensive stock market trading near record highs compounded with a looming threat of higher interest rates is leading to investors increasingly shunning growth stocks in favor of more defensive value companies.
Among the first casualties is the renewable energy sector.
After enduring a torrid season in 2021, renewable energy stocks are off to another bad start in the current year.
The solar sector’s favorite benchmark, InvescoSolar Portfolio ETF (NYSEARCA:TAN), is down 8.1% after the first week of trading while its wind power counterpart, First Trust Global Wind Energy ETF(NYSEARCA:FAN), has lost 4.4%.
One of the leading names in the solar sector, Enphase Energy, Inc. (NASDAQ:ENPH), has tanked 21% since the beginning of the year and is now down 44% from its all-time high reached just a couple of months ago, with higher interest rates blamed for the crash.
There have also been huge sell-offs in special-purpose acquisition companies, electric vehicle stocks, and software stocks, as investors adopt more defensive positions.
U.S. 10 Year Treasury yields have taken off to 1.78%, up 28 basis points this year. Minutes released from the Federal Reserve’s last meeting in December 2021 suggest that an interest rate hike is now imminent as it tries to tamp down inflation.