How the Utility Sector Performed in October
Performance of the utility sector
The utility sector is an important component of the S&P 500 Index (SPY). The Utilities Select Sector SPDR Fund (XLU), which tracks the performance of the utility sector, rose nearly 3.8% in October. On a year-to-date basis, this ETF rose nearly 15.9% as of October 30, 2017.
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Major utility stocks had a positive performance in October 2017. Stocks such as NextEra Energy (NEE), Duke Energy (DUK), Dominion Energy (D), and Southern Corporation (SO) rose nearly 6%, 5%, 5.8%, and 6%, respectively, on a year-to-date basis, as of October 30, 2017.
Interest rate and the utility sector
The utility sector is very sensitive to the interest rate movement. It’s highly dependent on debt capital for its day-to-day operations and infrastructure developments. So when the interest rate rises, it affects the cost of capital for utility stocks. The utility sector reacts very fast in either direction after the announcement of the Fed’s decisions.
On the other hand, investors generally prefer utility stocks during any type of market turmoil or any international turmoil, as they are high-yielding instruments. These stocks generally pay higher dividends.
In the next part of this series, we’ll analyze the performance of the healthcare sector.