MARKETS:

Renewable energy helps fuel Dow above 11,000

NEW YORK -- The benchmark Dow Jones Industrial Average closed above 11,000 for the first time since stock markets began their nosedive 18 months ago. And the rebound in investor and trader confidence seems to be taking renewable energy and clean technology stocks with it.

An uptick in the price of a barrel of oil, the coming 40th anniversary Earth Day celebrations and renewed focus on energy and climate legislation in Congress could once again be sparking market enthusiasm, at least for the short term, market watchers are speculating.

But the upturn could prove short-lived as some banks and investment firms remain wary of the sector's long-term performance, warning their clients of shrinking public support for subsidies and an end to government stimulus spending globally.

The Dow settled at 11,005.97 at the closing bell Monday. That's just 0.1 percent higher than Friday's closing level, a rise of only 8 points. But it represents the first time the stock market index broke the 10,000 range since the bankruptcy of Wall Street icon Lehman Brothers Holdings sent the entire financial system into a tailspin more than a year and a half ago.

Solar company stocks, in particular, have been performing well at the close of the year's first fiscal quarter. That's despite ominous news of rapidly shrinking subsidies that have been the real engine of growth for the industry. Several large European nations have been announcing steep cuts to their feed-in tariff programs, through which governments guaranteed higher subsidized electricity prices for solar power generation, in a bid to plug huge budget deficits.

Among U.S. firms, First Solar saw its shares rise by 2.3 percent last week, and the stock bounced up again by more than 3 percent in trading Monday. Holdings in the largest solar company in the United States closed yesterday at almost $128 per share, from about $124 at the beginning of the day. The stock rose to nearly $130 in the first half of the day before settling back.

MEMC, a wafer supplier, rose by more than 5 percent last week and bumped up again by nearly 2 percent Monday. Competitor LDK Solar's share price rose by 11.9 percent last week and rose almost 4 percent higher still yesterday. Analysts cite rising prices for their products as reason for the strong performance.

"Prices are expected to further increase in 3Q10," Credit Suisse analysts said in a new report.

Optimism mixed with caution

Market data by Credit Suisse show that most clean-tech stocks gained last week, fueling confidence that could lead to stronger pricing. Energy-efficiency technology manufacturers are among those benefiting from the upturn. For instance, light-emitting diode manufacturer Cree saw its share price rise by 12 percent last week, though Cree shares mainly traded sideways yesterday.

Energy-efficiency technology stocks could continue to perform well as the summer months approach bringing higher electricity costs. But not everyone is convinced that the brimming confidence of the markets will continue to shine on all sectors of the industry.

"Perhaps the most important point regarding alt energy investing is recognizing that government subsidization and regulation assistance are required because few renewables are economic today," said Bank of America-Merrill Lynch analyst Steven Milunovich in a note.

In a recent briefing with reporters, Milunovich and others at the bank said they believe solar companies are particularly vulnerable to slipping government support, especially as production increasingly shifts to China and governments in the United States and Europe don't want to be seen as supporting foreign firms. Wind power, which is more sheltered by trade barriers, could still do well but faces serious competition in the form of cheap, abundant natural gas, particularly in the United States, Milunovich said.

Analysts at JPMorgan Chase are also sounding a more cautious note.

"Demand for all forms of renewable energy including wind remains subdued outside of California, due to weak demand for electricity and cheap natural gas," said JPMorgan Chase alternative energy analyst Christopher Blansett. In a report summarizing the mood from last week's New York gathering of the American Wind Energy Association, Blansett notes that although sentiment is improving, the U.S. wind industry still expects to install 2 gigawatts less of new capacity than was added in 2009.

But even Bank of America-Merrill Lynch analysts see brighter days ahead in 2011 and beyond, at least for investors willing to move beyond wind and solar, the two giants of the clean-tech industry.

"Global alt energy market cap is about $200 billion, not much larger than Google," analysts there point out. "Despite near-term challenges, that suggests substantial long-term opportunity, which the stocks aren't discounting since cleantech's [price/earnings]-to-growth ratio is below the market's."

The NASDAQ and Standard & Poor's 500 indexes have also recovered to pre-recession highs, a factor that could further pull clean-tech stocks upward after months of poor returns.