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Why Utility Sector Had Inverse Correlation with S&P 500 in January

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Utility sector in January 2018

In the previous part of this series, we saw that the consumer staples sector generally acts as a defensive sector. The utility sector is another key component of the S&P 500 Index (SPX-INDEX). The Utilities Select Sector SPDR ETF (XLU), which tracks the performance of the utility sector, fell 3.2% in January 2018. However, the broader market S&P 500 Index rose 5.6% in the same month.

In 2017, the XLU ETF rose 12%. However, in January 2018, the XLU ETF had an inverse relationship to the S&P 500 Index. The utility stocks are very sensitive to interest rate movements, as these companies tend to have high debt levels.

However, the utility sector also acts as a defensive sector. In the strong market rally in January 2018, which has been mainly driven by robust economic growth, this sector showed weakness.

NextEra Energy (NEE), Duke Energy (DUK), Dominion Energy (D), and Southern Company (SO), major holdings of the XLU ETF, returned 1.4%, -6.6%, -5.7%, and -6.2%, respectively, in January 2018.

In the next part of this series, we’ll analyze what the moving averages are indicating for the S&P 500 Index.

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