Utilities sector rating_ underperform
The utilities sector comprises electric, gas and water utilities; independent power producers and energy traders; and companies that generate and distribute electricity using renewable sources.
An improving U.S. American market futures economy could create a headwind for the utilities sector, as rising inflation could lead to higher interest rates, reducing the attractiveness of dividend-paying utilities companies.
Utilities stocks rebounded immediately following the British vote to leave the European Union in June 2016—the “Brexit”—as expectations declined for a Federal Reserve rate hike, and investors again went on a hunt for yield. Us dollar indian rupee exchange rate We urged investors not to chase the rebound, and in fact we’ve seen weakness in the group over the past few months as concerns seem to have eased and Fed hike expectations have increased.
We think U.S. The binary economic data will continue to show improvement, prompting investors to move into more cyclical areas of the market, away from the traditionally defensive utilities sector. Bloomberg stock futures cnn We also believe that rising inflation could lead to higher rates than the market is currently expecting, potentially resulting in investors moving out of the “yield-chasing” trade that has helped to bolster the sector.
Although it can be difficult to resist performance chasing at times, recent events have shown that can be treacherous, and we continue to believe a stronger economy and higher interest rates support a rating of underperform for the utilities sector.
• Improvement in housing: An improving housing market could lead to higher electricity demand in developing areas, and we’re seeing signs that may be occurring as housing starts have started to creep higher again.
• Attractive dividends: Dividend-paying stocks remain attractive compared to relatively low yields on conservative fixed- income products. Binary to letter converter And should economic prospects decline, defensive, dividend-paying stocks could become even more attractive.
• Rising interest rates: This would make the yield-heavy utilities sector less competitive with fixed income investments. 1 usd to idr Additionally, relatively high debt ratios in the sector could be problematic.
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