Utility Was the Second Biggest Drag on SPY as NRG Energy Crashed

Renee Blakely - Author

Dec. 3 2015, Published 12:38 p.m. ET

Utility sector loses its appeal

The Utilities Select Sector SPDR ETF (XLU) fell 2.2% on December 2, 2015, after the hawkish comment on the rate hike by the Federal Reserve Chairperson, Janet Yellen, in her speech to Economic Club of Washington. Utility stocks are considered as bond proxies and generally outperform the market during times of volatility. However, when the volatility in the US stock market rose to 8.5% on Wednesday, these stocks still lost their appeal as the short-term interest rates on government securities are likely to rise this year. The table below depicts the performances of a few of the utility stocks since the trailing-one-year period as well as their moving averages.

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In-depth analysis

The electric utility stocks, namely, NRG Energy (NRG), AES (AES), PPL (PPL), Public Service Enterprise GP (PEG), and Entergy (ETR) yielded -12.6%, -3.8%, -3.0%, -2.9%, and -3.1%, respectively, on December 2, 2015.

As we see in the table, the six-month beta of these stocks is less than one, meaning that these stocks are less sensitive to the broad market movement, with the exception of NRG Energy (NRG). However, the beta of NRG is still around one.

These stocks traded at a closing price on December 2, 2015. The closing prices were less than their respective 100-day, 50-day, and 20-day moving averages as seen above. The consistent trading price below the 20-day, 50-day, and then 100-day moving averages points towards a downtrend in the stock price movement. Hence, the trailing-one-month and trailing-one-year yields of these stocks are negative.

An exception to the above case is PPL (PPL), as it traded at $33.18, or above its 100-day moving average of $32. Its trading price is very near to its moving average values, and hence, the yields of this stock are less negative.

The analyst stock target price set for these stocks is higher than the closing prices, suggesting an upward potential in the stock price movement. The average growth potential of these stocks, when compared to the analyst target price, is 32% as of December 2.

Now let’s take a look at the key stocks of the SPDR S&P 500 ETF (SPY) on December 2.


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