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Have Utility Stocks Started to Look Exhausted?

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Updated

Utility stocks fell

While broader markets continued to gain as the US-China trade talks resumed, utility stocks fell more than 1% on March 28. The Fed’s intentions to pause interest rate hikes and geopolitical tensions boosted utilities in the last few months.

Including dividends, utilities returned ~20%, while broader markets returned 10% in the past year.

XLU % change

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Gains and losses

Southern Company (SO) fell 1.7%, while NextEra Energy (NEE) fell 1% on March 28. Southern Company and NextEra Energy are trading close to their all-time highs. PPL (PPL) and PG&E (PCG) were some of the top losses on March 28. PPL and PG&E each fell 2.4%. Profit-booking and valuation concerns might have triggered the sell-off in utilities.

Treasury yields and utility stocks (VPU) usually move opposite to each other. Recently, the benchmark ten-year Treasury yield trended sharply lower. The ten-year Treasury yield is trading at 2.41%, which is lower than the three-month Treasury yield.

When the long-term debt yields less than the short-term debt, it’s termed as a “yield inversion,” which could signal a recession. While the “inverted yields” continue to haunt analysts, investors might take shelter under safe-haven utilities.

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