Historic Moves in the Utilities Sector
OK, we get it; you’ve heard enough about the Utilities sector for now, but check out these charts, they’re nuts. Starting with the ‘boring-est’ of them, the SPDR Sector ETF for the Utilities sector (XLU) has not only gone practically straight up but check out all the green bars (days where the closing price was higher than the opening price) in the shaded area. Until the last week, it was a green and clean line higher. At one point last week, the sector closed higher than it opened on 16 out of its prior 17 trading days.
The chart below puts the run of higher closes into perspective. On a rolling 15-trading day period (three weeks), the reading of 14 reached on 5/9 was a level matched during only one other period in the last 24 years – January 2020.
While the S&P 500 Utilities sector has performed exceptionally well lately, not all Utilities are created equal. The chart below compares the performance of the S&P 500 Utilities sector to the Dow Jones Utilities Index over the last year. From last May through mid-February, the two indices performed hand in hand, but their paths have steadily diverged since February. As the two have continued to generally move in the same direction, the performance gap may not seem large, but it has actually been historic.
Over the last 50 trading days, the S&P 500 Utilities sector has outperformed the Dow Jones Utilities sector by over three percentage points, and at one point during the divergence cited above, it reached 4.7 percentage points. Levels like that haven’t been seen in over two decades (December 2002). For years, utility stocks have been thought of as somewhat interchangeable with each other as their heavy regulation made it hard to differentiate one from the other. The rise of artificial intelligence (AI) and the ever-increasing demand from data centers have reshaped the Utilities sector. This, coupled with a growing number of less-regulated players, has created a more dynamic – but also less standardized – environment. As a result, the inclusion or exclusion of certain companies in different indexes can lead to significant performance disparities, as we’ve seen in this case.
Bespoke’s Morning Lineup — 5/17/24
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“The best way to predict the future is to invent it.” – Alan Kay
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The S&P 500’s 5%+ rally so far in May has left internals overbought for the time being. Below is a quick look at our 50-day moving average spread chart for the S&P over the last 12 months. We’re currently right at two standard deviations above the 50-DMA. Note that this reading got up to three standard deviations above the 50-day last summer before seeing a sharp multi-month pullback.
Of the more than 1,800 stocks that have reported this earnings season, 69% beat EPS estimates, 64% beat sales estimates, 7% raised guidance, and 6% lowered guidance. The average stock that reported saw its shares decline 0.13% on its earnings reaction day.
As shown in the top right charts in the image below, EPS beat rates continue to trend lower, while sales beat rates have been trending sideways.
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The Closer – AI Infrastructure vs. Utes, Residential Construction – 5/16/24
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Bespoke’s Weekly Sector Snapshot — 5/16/24
Chart of the Day – Eaton (ETN) Rides Electricity Wave
Bespoke’s Morning Lineup – 5/16/24 – Bright Lights on Wall Street
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“The sports page records people’s accomplishments, the front page usually records nothing, but man’s failures.” – Barbara Walters
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Equity futures remain in modestly positive territory even after a slug of economic data that was more of the same. Initial and continuing jobless claims came in slightly ahead of forecasts, Housing Starts and Building Permits were both weaker than expected, the Philly Fed Manufacturing report missed forecasts, and the only area of strength was in Import Prices. Essentially, every data point went the opposite of what you would want to see in a strong economy. To be fair, outside of Housing Starts and Import Prices, the deviation from consensus forecasts wasn’t very large.
The snapshot below from our Trend Analyzer shows the performance of each S&P 500 Sector SPDR ETF so far this year and where each one is trading relative to its trading range. The ETF for the Utilities sector (XLU) tops the list with its gain of over 15% on the year. Even more amazing is that while no other ETF closed more than 4.2% above its 50-day moving average (DMA) yesterday, XLU finished more than 10% above its 50-DMA. Outside of one day in April 2022, the last time the sector traded further above its 50-DMA was in 2003!
The chart for XLU looks parabolic with a heavy helping of green. At one point last week, the sector closed higher than it opened in 16 out of 17 trading days, and on a 15-day rolling basis, the only time there was anything near that level of consistently higher closes than opens over three weeks occurred in January 2020.
With the sector performing so well lately and outperforming the S&P 500, you would think finding winners would be like shooting fish in a barrel, but that’s not the case. The chart below shows the YTD performance of the 31 stocks in the S&P 500 Utilities sector, and outside of three stocks, there hasn’t been much in the way of outstanding performance in the sector. While Vistra (VST), Constellation Energy (CEG), and NRG Energy (NRG) have all surged more than 60% this year, only five other stocks in the sector have outperformed the S&P 500 YTD. An additional way to show the disparity in performance this year can be seen in the fact that stocks in the sector have rallied an average of 16.2% this year, while the median gain has been just 8.1%.
Along the lines of Barbara Walters’s comment above, while VST, CEG, and NRG would be on the back page of the NY Post under a headline like “Nuking the Competition”, more stocks from the Utilities sector would likely find themselves on the front page under a headline like “Dim Bulbs”.
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Bespoke Baskets Update — May 2024
The Closer – Meme Stocks, CPI, EIA – 5/15/24
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Daily Sector Snapshot — 5/15/24
Fixed Income Weekly — 5/15/24
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