When it comes to different sectors of the market, it doesn’t get more ‘boring’ than Utilities. In fact, the sector is known for its lack of action, which is one reason why investors in the sector like it so much. You simply aren’t going to wake up one morning and see stocks in the sector up or down 5% on no news. In the last couple of weeks, though, the sector’s volatility has been increasing as sentiment on the sector has gone from extremely positive to downright apocalyptic. The chart below shows the 10-day advance/decline (a/d) line of the S&P 500 Utilities sector going back to the start of 2014. If you aren’t familiar with the 10-day A/D line, it is simply a breadth measure that adds up the daily number of advancing issues minus the daily number of declining issues on a rolling ten trading day basis.
Just over two weeks ago, on 9/23, the sector’s 10-day A/D line rose to its highest level since March. As if a light switch suddenly went on, though, the next ten trading days saw extremely negative breadth as the 10-day A/D line cratered to its most oversold level since November 2012 and one of the most oversold readings for the sector on record. Given their relatively high dividend yields, utility stocks tend to be interest rate sensitive, so when interest rates rise, stocks in the sector decline. While interest rates did rise during this period where sentiment shifted, they didn’t go up by that much. We can only imagine how rough things for the sector could get if rates really started to rise.
Our weekly Sector Snapshot report provides detailed charts of important trends and indicators for the ten major S&P 500 sectors. For each sector we provide the following charts: overbought/oversold level, 10-day advance/decline line, % of stocks above 50-day moving average, P/E ratio, and relative strength vs. the S&P 500. Along with the charts, we also provide insightful commentary on current market trends so that subscribers can stay on top of our views.