One of the safety havens on Wall Street ruins
Facts:
1) Utility stocks are perceived as a stable haven for investors due to steady checks collected by the firms of the sector.
2) In 2022 in mid-September, the S&P utilities sector was up more than 8% from the beginning of the year.
3) However, over the past month utilities sector has shown itself to be the worst-performing among all of the S&P 500 sectors. It is down 13% compared to a 4% downturn of the whole index.
4) Some days ago the utilities sector dropped to the historical minimum of the year.
Analysis:
1) Utility stocks are demanded partly because of the dividends they provide with. Companies in the S&P utilities sector offer a 3.2% dividend yield, a high benchmark.
2) The downturn of the utilities sector can be explained by the growth of the interest rate on the background of inflation rise. One of the manifestations of the increasing interest rate is a 4% yield on the 10-year Treasury note. Such a high yield on a virtually risk-free asset drastically decreases the demand for utility stocks.
Inspired by WSJ
