Why Utility Stocks Are Looking So Attractive

It’s a given that the markets don’t like uncertainty, and with all the turmoil in Washington, the U.S. and abroad, stocks have cooled off in August. While the big-cap S&P 500 Index hasn’t shown a significant correction, small caps on the Russell 2000 have seen a bigger pullback, which is a sign that investors are in a risk-off mode and are looking to put their capital to work in safer stocks.

One of those safe havens is utilities, whose prices tend to remain stable. Another big plus is their dependable dividend yield, which sits at an average of three percent for big-cap utility stocks. And from a technical point of view, the sector has been a strong performer so far this year. It’s up two percent in August while the S&P 500 is down one percent.

Utilities’ rise is a sign of market rotation and should mean that the sector continues to rally for the next few months. It is important to note that the stocks are near an overbought condition, but since the trade would be more of a medium-to-long-term position (possibly through the end of the year) that’s not too worrisome.

A simple way for investors to get exposure to utilities is through the Utilities Select Sector SPDR Fund (XLU). The ETF has a 3.2 percent annual yield and is weighted with the biggest-market-cap utility stocks. Looking at XLU’s weekly chart, we see that the Moving Average Convergence Divergence (MACD) has just turned positive. A reversal for this indicator is a sign that the stock’s momentum has flipped, and in this case, it’s to the upside.

Investors are in a risk-off mode and are looking to put their capital to work in safer stocks like utilities. …read more

Read more here: Why Utility Stocks Are Looking So Attractive

Category: XLU

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