Why the Senate’s Reconciliation Bill Is Rattling Markets—And What You Need to Know

Clients have been reaching out this morning with one question: “Why are solar stocks down?” The answer lies in the fine print of a 1,000+ page piece of legislation that’s still far from law. Let’s walk through what’s happening and whether the market’s reaction is proportional—or premature.

The Senate Finance Committee, led by Chairman Mike Crapo (R-ID), unveiled its long-awaited revisions to the House-passed “One Big Beautiful Bill,” and the proposed changes are significant. Designed to reconcile Trump-era tax cuts with his new agenda, the legislation touches everything from green energy to Medicaid to semiconductor policy. Notably, the Senate version softens some of the harshest provisions from the House, particularly around clean energy—but it also introduces new uncertainties.

First, the market’s knee-jerk reaction: solar stocks opened sharply lower on the news, with companies like Sunrun and Enphase down meaningfully. Why? The bill proposes phasing out the Investment Tax Credit (ITC) and Production Tax Credit (PTC) for solar and wind starting in 2026—far earlier than expected. Projects starting in 2026 would get just 60% of the credit’s value, down to 20% in 2027, and nothing thereafter. By contrast, the Inflation Reduction Act (IRA) had extended these credits to 2032.

However, the Senate bill offers a notable carve-out: energy storage, geothermal, nuclear, and hydro facilities would retain the original 2032-2036 phaseout. And transferability of credits remains intact—crucial for financing. That’s important context. It’s not a full repeal, and for sectors like storage, it’s a lifeline. Still, for solar and wind, the shortened timeline may disrupt project pipelines and investment decisions.

Is this as bad as the market reaction suggests? Arguably, no. While the reduced runway is a headwind, many projects already underway will remain eligible for full credits, and the language is still under negotiation. This is a proposal, not a done deal. It’s also worth noting that the bill retains the advanced manufacturing credit and adds new restrictions only on projects with links to prohibited foreign entities—a likely swipe at Chinese-backed firms operating in Southeast Asia. In short: yes, it’s a rollback, but not a blanket repeal. The market may be pricing in worst-case fears.

Let’s zoom out. The Senate bill doesn’t just reshape energy—it’s a comprehensive tax and entitlement overhaul. It scales back President Trump’s proposed tax breaks for tips and overtime, capping them at $25,000 and $12,500 respectively, while still aiming to cut taxes for seniors and preserve popular corporate deductions. The Senate also takes a more conservative stance on the Child Tax Credit—raising it to $2,200 per child (vs. $2,500 in the House bill) and tying it to inflation. For charitable givers, a more generous $2,000 deduction is included, but new limits are placed on itemizers.

Meanwhile, the bill holds the SALT deduction cap at $10,000—well below the $40,000 compromise reached in the House. That alone may be enough to doom the bill in the lower chamber, where blue-state Republicans are threatening to walk if the higher cap isn’t reinstated. “Dead on arrival,” Rep. Mike Lawler warned. And he's not bluffing—Republican leadership can’t afford to lose more than a handful of votes.

Medicaid changes are another political grenade. The Senate bill imposes steeper cuts than the House version by slashing the allowable provider tax rates from 6% to 3.5% over time, with carve-outs for nursing homes and facilities for the disabled. This could disproportionately impact rural hospitals—a concern voiced loudly by Senators Hawley and Collins. There’s also early discontent from fiscal hawks like Rand Paul and deficit-focused conservatives like Ron Johnson, who say the bill doesn’t go far enough to control spending.

As for clean energy, while Crapo’s revisions pull back from the House’s more extreme rollback, the industry is still in trouble. The Solar Energy Industries Association (SEIA) warned that the Senate bill “pulls the plug on homegrown solar” and could derail the manufacturing gains from the IRA. The American Clean Power Association called it a job-killer and a threat to AI infrastructure and data centers—an issue likely to resonate with markets. BloombergNEF agrees, forecasting a potential “plummet” in installations if the final version resembles the current draft.

That said, there are signs of compromise. Senate leadership has stressed that the $10,000 SALT cap is a “placeholder” and that negotiations are ongoing. And while the Senate text is more aggressive on Medicaid and child benefits, it notably walks back parts of the House bill, including its hard stop on Health Savings Account expansions and more extreme endowment taxes. Translation: this bill is a moving target.

The timeline is tight but not fixed. GOP leaders want to pass the bill before the July 4 recess, but insiders say September or October is more realistic. The House-Senate split on SALT, Medicaid, and energy is substantial. The reconciliation process lets Republicans bypass a Democratic filibuster—but only if they keep their own conference together. And right now, that’s anything but guaranteed.

So what should you, the investor, take from all this? First, don’t panic. The solar sector’s decline reflects headline risk and uncertainty, not a finalized policy. Second, watch the negotiations. SALT, Medicaid, and energy tax credits are still on the table, and the final version may soften. Third, be selective. Storage, nuclear, and geothermal look relatively insulated. Solar and wind may face near-term volatility, but long-term demand—especially from AI data centers—remains intact.

Bottom line: this bill is the opening bid in a high-stakes poker game. Until the cards are down and the votes are cast, volatility is inevitable—but opportunity remains for those with a steady hand.

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