Utility stocks have traditionally been less correlated to the general market than growth stocks. However, recent performance suggests a shift in this trend.
Recent Performance Overview
- In the six months leading up to January 27, the S&P 500 rose by 12%.
- During the same period, UTES, a utility stock ETF, tripled that performance.
- The top three holdings in UTES:
- Vistra (VST)
- Constellation Energy (CEG)
- Talen Energy (TLN)
- All three experienced gains of over 100%.
Market Reactions
- On January 27, China-based DeepSeek announced a potentially more efficient AI, causing most AI stocks to plummet.
- UTES dropped by about 10%, significantly less than Nvidia’s decline on the same day.
- When market indexes peaked in February, UTES followed suit but provided some protection during the subsequent downturn triggered by negative tariff news.
Resilience and Recovery
- The ETF’s resilience was evident as it climbed back above its fifty-day moving average just one session after a follow-through day on April 22.
- Positive signs included:
- Surpassing its twenty-one-day line.
- Breaking above its fifty-day line.
Analyst Insights
- An anonymous analyst from a New York City investment firm noted, "We wanted to stick with stocks and ETFs that weren’t moving around too much on a daily basis. UTES fit our criteria because its average true range compared to SPY was similar."
- As markets surpassed their fifty-day lines late last week, investors added positions in utility stock ETFs like UTES, which has gained about $1 billion since March, according to Bloomberg Intelligence analyst Eric Balchunas.
Caution in the Market
- Despite the gains, caution remains due to market indexes still being below their two-hundred-day moving averages and potentially facing resistance at certain levels before reaching new highs for the year.
- An anonymous portfolio manager stated, "Before heading into the weekend, we trimmed our position in UTES slightly, taking some profit off of it. We’re trying not to get too long or short anything right now until we see how things play out."
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