Shares of power producers have seen a significant increase as traders weigh their options in light of economic growth projections. While the SPDR Select Sector Utilities exchange-traded fund, which tracks the utilities industry group of the S&P 500, experienced a 0.9% rise, it has still suffered a 5.4% decline year-to-date – the worst performance among the 11 industry groups.
There are several factors contributing to this underperformance, both fundamentally and technically. One major concern from a fundamental standpoint is the current interest rate levels. The utilities industry group, burdened with a heavy debt load, is often seen as an alternative to fixed income investments. J.D. Joyce, president of Houston financial advisory Joyce Wealth Management, highlights this issue.
On the technical side, the rise in yields has also affected savings accounts, making them an attractive option for investors looking for a parking spot to grow their money. Joyce further explains that the relative weakness of the utilities sector could actually be seen as a bullish indicator. Traditionally, utilities are considered a defensive sector, often sought after during economic downturns. The fact that the sector is struggling while economic growth rallies could be seen as a positive sign.
In other news related to power producers, two former executives at FirstEnergy – including former CEO Charles Jones – and Samuel Randazzo, the ex-chairman of the Public Utilities Commission of Ohio, are facing indictments on public corruption charges. These charges stem from a nuclear bribery scandal that occurred in the state.