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Why the Utility Sector Fell in September 2017

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Oct. 2 2017, Updated 11:41 a.m. ET

Performance of utility sector

The utility sector is an important sector in the S&P 500 Index (SPY). The Utilities Select Sector SPDR Fund (XLU), which tracks the performance of the utility sector, has fallen 3.5% so far in September 2017. This ETF rose nearly 7.2% in the first half of 2017. On a year-to-date basis, this ETF rose nearly 9.5% as of September 28, 2017.

NextEra Energy (NEE), Duke Energy (DUK), Dominion Energy (D), and Southern Corporation (SO) returned nearly 23.8%, 8.4%, 1%, and -0.2%, respectively, on a year-to-date basis, as of September 28, 2017.

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Interest rate and the utility sector

Companies in the utility sector are highly dependent on debt capital for their infrastructure development and operations. It uses borrowed capital for its day-to-day operations. The utility sector is very sensitive to interest rate movement. When interest rates rise, it affects the cost of capital of this sector.

On the other hand, utility stocks are generally high dividend paying stocks. Since they’re high-yielding instruments, investors often prefer utility stocks during market turmoil. The utility sector is also boosting the S&P 500 Index (SPY).

In the next part of this series, we’ll analyze the performance of the healthcare sector.

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