All 41 utilities under our coverage gained during the week due to favorable macroeconomic data and strong earnings. The Utilities Select Sector SPDR ETF (XLU) gained 3.8% during the week ended July 31—the best performance in months. The ETF gained during all five trading sessions in the week.
Treasury yields tumbled over the week despite US GDP picking up speed in the second quarter. The Employment Cost Index, a major indicator of labor costs, rose just 0.2% in 2Q15 compared to an expected 0.6% increase, raising questions about the timing of a rate hike, which is expected to start this September. The lower increase in labor costs means low wage growth. Low wage growth keeps inflation in check as people make cautious financial decisions. Low wage growth also signals economic weakness. As economic strength is a primary trigger for the expected rate hike, the dismal Employment Cost Index data raised eyebrows.
Low rates bode well for utilities. Moreover, as utilities pay a high and stable dividend, investors flock to them, seeking higher yields when rates are low.
The Houston-based Calpine (CPN) was the biggest gainer in the lot. The stock rose 10.2% to end the week at $18.30 with a market capitalization of $6.6 billion. The company reported impressive operating performance, with its adjusted EBITDA[1. Earnings before interest, tax, depreciation, and amortization] rising 10.7% to $457 million in 2Q15 despite revenues falling over 25%.
The Boise-based IdaCorp (IDA) gained 6.9% to $62.11 with a market capitalization of $3.1 billion and dividend yield of 2.96%. The company reported around a 50% increase in net income in 2Q15.