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Today in the Market (10/20/2023)

Good Evening! On Friday, the US stock market concluded the trading day with losses as the benchmark 10-year Treasury yield remained slightly below 5% after remarks made by Federal Reserve Chair Jerome Powell.

It was a red day for the market, with the S&P 500 falling down by 1.26%, the Dow Jones decreasing by 0.86%, and the Nasdaq Composite sliding down the most by 1.53%.

SOLAR PANEL TROUBLE

The negative news that caused a significant decrease in the value of shares of SolarEdge (SEDG), a maker of solar power inverters, also negatively affected investors in other solar power firms on Friday. The stocks of solar power installation companies Sunrun (RUN), Sunnova Energy International (NOVA), and SunPower (SPWR) had declines of 6.90%, 5.86%, and 8.62%, respectively.

So what happened? The decline in stock prices began when SolarEdge disclosed preliminary figures for the third quarter on Thursday evening, cautioning that “substantial unexpected cancellations and pushouts of existing backlog from our European distributors” would result in the company falling short of its previous sales forecast by up to $200 million, representing a substantial 22% shortfall.

But why does that matter to the other solar panel companies? Each of these three firms is heavily engaged in the residential solar industry. According to SolarEdge, the issue with their order cancellations and “pushouts” mostly arose due to the slower-than-anticipated installation rates of solar power systems. This has led to an excess supply of inventory for SolarEdge, resulting in a decline in sales. Additionally, this indicates a decrease in sales of solar panels for Sunrun, Sunnova, and SunPower

HARD TIME FOR FINANCING

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The US corporate debt markets are exhibiting the first indications of distress as increasing rates and declining stocks have a negative impact.

So what is happening? The risk premiums, often known as spreads, for investment-grade corporate bonds, have increased to their peak levels since June. Despite the current state of the junk bond market, characterized by a significant increase in rates reaching their peak in a year, several corporations are encountering more difficulties in successfully selling their debt.

What is causing all this? The decline in the value of Treasury bonds has affected all sectors of business financing. This week, Treasury rates reached their highest levels in at least 16 years, with the 10-year rate approaching 5% on Thursday & Friday. This increase was prompted by retail sales data that exceeded expectations, which raised fears that the Federal Reserve has to take more action to curb inflation.  

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