Utilities and Future Rate Hikes
Utilities strong after recent rate hike
US utilities (XLU) surprisingly rose after the first interest rate increase this year due to the Fed’s softer-than-expected tone. Prior to the Fed’s meeting, the rate hike was expected to at least temporarily pull utilities down, given the Fed’s hawkish commentary.
Utilities appear strong after the first hike of 2017, in part because the much-anticipated hike had been largely priced in. However, multiple rate hikes this year could most likely have a negative impact on utilities. The Fed expects three more hikes this year, in line with its December dot plot projections.
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After a rate hike announcement from the Fed on March 15, 2017, utilities (XLU) rose 1.6%. However, the next day, utilities lost 1.1% due to profit booking.
Very few utilities attractive
After such an interesting run so far this year, very few utilities have a bright upside potential. We’ve picked four S&P 500 utilities that Wall Street analysts expect to have attractive upsides for the next year.
Analysts expect flattish upsides in many utility stocks, largely due to their rally in the last few months. However, according to analysts, NRG Energy (NRG), AES (AES), FirstEnergy (FE), and Exelon (EXC) have bright upsides. These stocks stand out in the sector and have attractive upsides of 8%–12% for the next year. Let’s have a look at their risk and reward propositions.