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Utilities: How These Defensives Fared in March’s Last Week

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Utilities fell

Improvements on the trade front with China pulled the markets higher last week, with the S&P 500 rising ~1.2%. Defensive utilities looked a bit exhausted last week after a long rally. They fell 0.6% overall.

The S&P 500 saw the best quarter in the last several years and gained more than 13% in the first quarter of 2019. In comparison, the Utilities Select Sector SPDR ETF (XLU) rose 10% in the period.

XLU 1

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The ten-year Treasury yield closed at 2.44%, while the three-month Treasury yield closed at 2.40% last week. While the inverted yields seem to be overturned for now, broader market uncertainty could continue to bother investors.

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Movers and shakers

Almost all the top utility stocks trended lower last week, with American Electric Power (AEP) among those that fell the most at 1.6%. NextEra Energy (NEE), the biggest utility by market cap, fell 0.3%, while Duke Energy (DUK) fell 0.8% during the week. Dominion Energy (D) stock rose 1.5%. The top-yielding utility stocks Southern Company (SO) and PPL Corporation (PPL) fell 0.4% and 1.4%, respectively, last week.

Safe-haven utilities have beaten investors’ expectations, but they could show signs of slowing in the short term. Over the past 12 months, utilities, including dividends, have returned 20%, while the broader markets have returned 10%. Safe-haven utilities’ relatively slow earnings growth and premium valuations could be an obstacle going forward.

According to Bloomberg, some of PG&E’s creditors, which include Elliott Management, Pacific Investment Management, and Davidson Kempner Capital Management, are proposing a $35 billion exit plan that would allow the utility to emerge from bankruptcy within a year. PG&E stock fell more than 8% last week.

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