Utilities are by far the worst performing of the 11 S&P 500 sectors this year. Investors are fleeing for better yields beyond the ailing utility sector.
Of the six S&P sectors down this year so far, none is even close to the 8.7% drop in the utilities sector. The second worst is consumer staples, down by a much smaller 2.9%.
Utility stocks historically have been known for their high dividends, making them attractive for investors looking for yield. But with Treasuries — which are considered risk-free because they are backed by the U.S. government — and CDs paying more than 5%, investors are jumping ship to collect yield while avoiding stock risk.
With T-bills ranging from 5.3% to 5.5%, investors have less incentive to buy into utility stocks.
The IBD diversified utilities industry group ranks a dismal No. 180 and the electric power group ranks No. 140 out of the 197 IBD industry groups.
Utility Sector Gets Left In The Dust
The SPDR Utility ETF, which tracks the utility sector, contains 30 S&P 500 stocks from the electric, water and gas industries.
The ETF lags the S&P 500's gain of about 16%. XLU offers a 3.3% dividend yield, but that's not nearly enough to make up for the drop in the share price.
Shares of XLU climbed off an 11-month low on Sept. 5 to test the 50-day moving average, but met resistance Monday. The ETF has traded mostly below the 50-day moving average this year.
The relative strength line has also deteriorated, and the IBD Relative Strength Rating sits a low 30.
The largest utility stock holdings in the XLU have certainly felt the pain this year. NextEra Energy, which is nearly 15% of the fund, has dropped over 18% this year. The Florida electricity provider hit a 52-week low on Sept. 6 and trades below its 50-day line.
Dominion Energy makes up over 4% of the fund and is down nearly 21% on the year. The electricity and natural gas provider hit a 52-week low on Sept. 8, pushing its dividend yield to 5.5% as the stock price dropped.
Xcel Energy makes up over 3% of the ETF and fell over 17% this year, with a 52-week low on Sept. 5.
American Electric Power is over 4% of the fund and lost more than 15% this year so far, despite a bounce off its Sept. 5 low.
This Stock Hit Even Harder
Utility stocks can have a risk of their own, as natural disasters such as fires can significantly affect their performance. Case in point: Hawaiian Electric. The stock is down nearly 70% after the Maui wildfires destroyed part of the island and the company was sued for its alleged role in the fire.
Follow Kimberley Koenig for more stock market news on X, the platform formerly known as Twitter, @IBD_KKoenig.
