Why Is the Utility Sector So Nervous?



What the sectors are doing

In the previous part of this series, we looked at the financial sector, the biggest gainer in the last six trading sessions. The industrial sector (XLI) also saw positive returns during that period. The Industrial Select Sector SPDR ETF (XLI) rose nearly 5.1% from November 9–16, 2016.

Trump’s plan for huge investments in infrastructure have led the rally in the industrial sector.

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What’s happening with the utility sector?

The utility sector, however, fell significantly during this period. The Utilities Select Sector SPDR ETF (XLU), which tracks the performance of the utility sector, fell nearly 5.6% from November 9–16, 2016. The utility sector normally pays higher dividends.

The expectation for a rise in inflation is increasing the possibility of the Fed raising interest rates in its December 2016 meeting. If that happens, we could see a fall in high-dividend-paying stocks.

On a year-to-date basis, XLU has risen 7.5% as of November 17, 2016. It’s currently trading at 6.7% below its 100-day moving average and 2.8% below its 20-day moving average. On January 27, 2016, its 20-day moving average crossed its 100-day moving average on an upward basis.

According to technical analysis, when a short-term moving average crosses its long-term moving average in an upward direction, we see an upward movement in the stock, and vice versa. On September 6, 2016, XLU’s 20-day moving average crossed its 100-day moving average in a downward direction. Since that day, it has fallen 7.8% as of November 17, 2016.

Major stocks of XLU such as NextEra Energy (NEE), Duke Energy (DUK), and Southern Company (SO) returned -8.3%, -7.2%, and -6.4%, respectively, from November 9–17, 2016.

Next, let’s look at the performance of the technology sector during the current period.


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