What Happened?
A number of stocks fell in the afternoon session after investors took some profits off the table as markets awaited signals on future monetary policy from the Federal Reserve's Jackson Hole symposium later in the week.
The downturn in the market was largely attributed to a significant sell-off in megacap tech and chipmaker shares. Nvidia, Advanced Micro Devices (AMD), and Broadcom all saw notable drops, dragging down the VanEck Semiconductor ETF. Other major tech-related companies like Tesla, Meta Platforms, and Netflix were also under pressure.
A key reason for this trend is that much of the recent market gains have been concentrated in the "AI trade," which includes these large technology and semiconductor companies. So this could also mean that some investors are locking in some gains ahead of more definitive feedback from the Fed.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Defense Contractors company Leonardo DRS (NASDAQ: DRS) fell 3.7%. Is now the time to buy Leonardo DRS? Access our full analysis report here, it’s free.
- Defense Contractors company Mercury Systems (NASDAQ: MRCY) fell 4.5%. Is now the time to buy Mercury Systems? Access our full analysis report here, it’s free.
- Renewable Energy company First Solar (NASDAQ: FSLR) fell 4.9%. Is now the time to buy First Solar? Access our full analysis report here, it’s free.
- Electrical Systems company Kimball Electronics (NASDAQ: KE) fell 3%. Is now the time to buy Kimball Electronics? Access our full analysis report here, it’s free.
- Defense Contractors company BWX (NYSE: BWXT) fell 3.8%. Is now the time to buy BWX? Access our full analysis report here, it’s free.
Zooming In On First Solar (FSLR)
First Solar’s shares are extremely volatile and have had 36 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 1 day ago when the stock gained 10.4% on the news that the U.S. Treasury Department and IRS released new guidance on clean energy tax credits that was more favorable than investors had feared, continuing a rally from the previous session. This move extends a surge from the previous trading session as investors reacted positively to the updated rules, which were less restrictive than many had anticipated. The guidance clarifies how solar and wind projects can qualify for valuable federal tax credits. For large utility-scale projects, a focus for First Solar, the rules now emphasize a "physical work test" to determine if a project has begun, largely replacing a previous provision. This development has cleared up policy uncertainties that weighed on the solar sector for over a year. In response to the favorable guidance, analysts at UBS designated First Solar as a top pick, citing the reduced policy risk and potential for significant earnings growth.
First Solar is up 12.9% since the beginning of the year, but at $210.57 per share, it is still trading 17.7% below its 52-week high of $255.75 from September 2024. Investors who bought $1,000 worth of First Solar’s shares 5 years ago would now be looking at an investment worth $2,776.
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