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Utilities Come under Pressure as September Fed Meeting Nears

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Nov. 20 2020, Updated 11:30 a.m. ET

Utilities

All 40 utilities we track saw a fall in their stock prices during the week ending September 4. The Utility Select Sector SPDR ETF (XLU) fell 5.3%, while the broad-based SPDR S&P 500 ETF (SPY) lost a whopping 3.5% during the week.

The utilities sector saw a deep correction after outperforming the broader market for weeks. US Fed officials are meeting on September 16–17 to discuss the possibility of a rate hike. An increase in interest rates would be negative for utilities, as they are capital-intensive. A rise in rates would increase the cost of capital for utilities. Moreover, since utilities pay attractive dividend yields, a rise in interest rates makes them less desirable.

Interestingly, US Treasury yields fell during the September 4 week across maturities. Concerns over China’s growth, and in turn the global economy, resulted in the fall in Treasury yields.

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Top losers

Houston, Texas-based NRG Energy (NRG) lost 11.3% to end the September 4 week at $17.93, with a market capitalization of $5.9 billion and a dividend yield of 3.2%.

Arlington, Virginia-based AES Corp (AES) lost 8.8% to end the week at $11.03, with a market capitalization of $7.5 billion and a dividend yield of 2.7%.

Wilton, Connecticut-headquartered NextEra Energy (NEE) dropped 7.1%, while Houston-based Calpine Corp (CPN) lost 6.8% during the week.

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