Investors Flock to Utilities amid Trade War Tensions



Utilities back in focus

The increasing severity of the trade war pulled broader markets down ~2.5% yesterday. The “widow-and-orphan” utilities sector stood firm throughout the day and rose over 1%. So far this year, the Utilities Select Sector SPDR ETF (XLU) has risen more than 12%, marginally underperforming the S&P 500.


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What’s next?

Top utility stocks Southern Company (SO) and Dominion Energy (D) rose 1.4% each while American Electric Power Company (AEP) and NextEra Energy (NEE) rose approximately 2% on May 13.

While broader markets continue to be volatile, utilities could remain in focus. However, they seem to be trading at an expensive valuation at the moment, which could concern investors. Many top utility stocks are trading 20 times their forward earnings, which seems exorbitant for a slow-growth company.

Investors generally move to safer utility stocks amid broader market uncertainty due to their stable stock movements and higher dividend paying abilities.

Utilities have been rallying from the last few months now driven by geopolitical tensions. Many top utility stocks such as Southern Company, NextEra Energy, and Sempra Energy (SRE) are currently trading at their respective all-time highs.

Merchant power stock NRG Energy (NRG) and competitive utility stock AES (AES) fell ~1% each yesterday. NRG and AES, top gainers last year, have seen tremendous weakness recently and have fallen 10% and 6%, respectively, so far this month.


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