Utilities were among the few immune sectors on June 25 as trade fears hit the markets. The Utilities Select Sector SPR ETF (XLU), which tracks the S&P 500 Utilities Index, continued its uptrend for the sixth consecutive day and rose 1.7% for the day. Broader markets closed 1.4% lower on June 25. Trade issues between the US and China intensified. There are concerns that US officials will initiate restrictions on Chinese companies investing in US technology companies.
Investors tend to take shelter in defensive stocks like utilities amid market turmoil due to their relatively stable stock movements and higher dividend yields. So far, the slow-moving utilities sector hasn’t performed well this year due to rising interest rates. Recently, utilities have shown a decent uptrend and have risen ~7% in the last three weeks.
Leaders and laggards
Top utility stocks NextEra Energy (NEE) and Duke Energy (DUK) rose 1.3% and 2.1%, respectively. FirstEnergy (FE) and Xcel Energy (XEL) rose ~3% during the day. Southern Company (SO) rose 1.7%, while Dominion Energy (D) gained 1.4% on June 25.
Utility stocks have been on a solid uptrend since Morgan Stanley upgraded the sector last week. Currently, XLU is trading in the deep “overbought” zone with its relative strength index at 83. XLU is trading 3% above its 50-day moving average and marginally below its 200-day moving average levels.
Utilities seem strong despite Moody’s downgrade last week. Moody’s Investor Service cut US regulated utilities’ outlook to “negative” for the first time amid rising debt levels. Moody’s expects higher financial risk in utilities for the next 12–18 months.
To learn how utilities fared against broader markets last week, read Leaders and Laggards in S&P 500 Utilities Last Week.