In a bleak beginning to the year, only one sector of the S&P 500 is in the green so far in 2016: the utilities.
The S&P 500 has fallen 6 percent year to date, while utilities stocks have risen more than 1 percent. Meanwhile, every other sector has dropped more than 2 percent, with materials leading the way down.
The utilities sector is widely considered a safe haven strategy in times of market turmoil, because of relatively high dividends that make returns more bond-like, and less exposure to economic growth. Amid the 2016 market sell-off, scared investors have begun flocking to utilities stocks, Eddy Elfenbein of the Crossing Wall Street blog said.
“When people get scared, they seek out stability, and that’s what’s happening to utilities right now,” Elfenbein said Thursday on CNBC’s “Power Lunch.”
Additionally, global growth concerns and market volatility are seen as slowing down the Fed’s rate-hiking path, which is causing investors to “come back into utilities and they see a lot of those dividends are good value right now.”
Indeed, utilities had been underowned due to worries over talk of multiple rate increases in 2016, Rich Ross of Evercore ISI said Thursday.
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“It’s to be expected as the specter of a stronger employment and stronger economy and interest rates weighed on those utilities,” Ross said on “Power Lunch. “But fortunately, thanks to the start to the S&P, we don’t have to worry about either one of those right now, which puts utilities right back on the radar screen.”
From a technical perspective, Ross said the utilities sector has held up well as all other sectors have broken important technical levels. As long as the utilities sector ETF, XLU, stays above the 150-week moving average and the $42 level, this sector should be a buy for investors, he said.
“At the end of the year, those yields are going to look very attractive in what we consider to be a cyclical bear market decline in the context of an ongoing structural bull market,” Ross said.
[“source -cncb”]
