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Utilities Sector Stock Market Update for the Week Ended July 24

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Utilities crash

The Utilities Select Sector SPDR ETF (XLU) fell 2.4% during the week ended July 24, more than offsetting gains from the previous week. Out of the 41 utilities stocks we track, only one advanced. The remaining 40 dropped.

Concerns over China’s growth weighed heavily on the broader market, bringing down the broad-based SPDR S&P 500 Index (SPY) 2.2% over the week. So the utilities sector also dropped in spite of treasury yields falling for most maturities. Utilities benefited greatly due to low interest rates during the last several years, as they undertook billions of dollars in capital expenditure to benefit from the low rates.

In an accidently leaked document, the Fed economists were seen taking a bearish stance on growth projections. According to the document, these economists expect a 25 basis point increase in the Fed funds rate this year.

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Top losers

Dynegy (DYN), headquartered in Houston, Texas, lost 15.1% during the week to close July 24 at $24.94 with a market capitalization of 3.1 billion. The Federal Electricity Regulatory Commission’s order to include demand response in the upcoming capacity auctions of PJM Interconnection weighed heavily on the stock.

PJM Interconnection is the world’s largest wholesale electricity market, serving 13 US states and Washington, DC. The order is expected to reduce DYN’s capacity. Moreover, the concept is expected to reduce electricity prices, impacting generators’ profitability. Currently, more than 40% of DYN’s total capacity operates in the PJM Interconnection.

Covanta Holding (CVA), an energy-from-waste generator, dropped 9.7% to $19 on an earnings miss. The fall in price has made the stock attractive for yield seekers, offering a dividend yield of 5.26%. Exelon (EXC), another generator with a large wholesale market presence, dropped 7.7% to $30.91 with a dividend yield of 4.01%.

Hawaiian Electric Company (HE) fell 6.9% to $28.80 as strong opposition emerged for its proposed acquisition by NextEra Energy (NEE).

Sole gainer

While other utilities stock fell, NorthWestern (NWE) emerged as the only gainer during the week ended July 24 with a 0.9% gain. The company’s 2Q15 earnings beat forecasts.

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