New inflation data has the stock market looking in the red today. But it was very bad news for some companies, and Plug in the power (SOCKET -10.07%) is one of them. That's why Plug shares plunged as much as 10.7% Tuesday morning. As of 11:30 a.m. ET, shares of Plug Power remained down 9.7%.
Today's action reverses what had been a nice run-up in Plug Power stock. Over the past month, shares of the hydrogen fuel company have risen nearly 20%, despite the current decline.
Interest rates will be higher for longer
Consumer Price Index (CPI) data released today shows higher inflation lasting longer than many investors and economists predicted. Many thought the Federal Reserve would begin a cycle of lowering interest rates early this year, but that is now doubtful. In fact, today's data suggests rates could stay higher through 2024 before the Fed takes action to lower them.
The CPI rose 0.3% in January, the Bureau of Labor Statistics reported today. This translates to an inflation rate of 3.1%, down from 3.4% in December. But it remains surprisingly high, with economists on average forecasting a rate of 2.9%. That's not what investors in loss-making speculative companies like Plug Power want to see.
Not an inflationary investment
In times of inflation and higher interest rates, investors flock to investments such as commodities, bonds and value stocks. They sell shares of companies that will incur higher costs of capital. Plug Power is currently experiencing positive momentum in the business. Over the past two weeks, it began shipments of hydrogen from its new green hydrogen plant in Georgia and its facilities in Tennessee.
But continued high interest rates will cost the company dearly, as it will have to raise new capital. Its cash and cash equivalent levels have fallen from around $690 million at the end of 2022 to around $110 million on September 30, 2023. Investors are turning away from names like Plug Power today, and there could be have more cuts to come until interest rates drop. prices are in sight.
Howard Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the securities mentioned. The Motley Fool has a disclosure policy.