Higher Prices For Utilities Is Positive For Stocks!

JC Parets
July 9, 2018

Some people look at Utility stocks doing well as something negative. I never understood that. They suggest that an uptrend in a sector that is looked upon as "defensive" is not something characteristic of a stock market that is going up. But, in fact, it is. With Utilities pressing against all-time highs again, now is as good of a time as any to remind ourselves that they indeed move with the overall stock market over time.

Here is a chart of the Dow Jones Utility Average overlaid with the performance of the S&P500. Do they not look the same?

This is a market of stocks. For S&Ps to rally, stocks need to go up, Utilities included.

Here is a look at just the DJ Utility Average on its own. I see 720 as the big level. This is the 161.8% extension of the 2007-2009 decline, and where the index stopped rallying in Summer 2016. Since then we have seen a sideways range, including a failed breakout late last year. With momentum in a bullish range, I think an upside resolution here perfectly normal, and should be expected:

In our Q3 Playbook I lay out a list of Utility Stocks we want to be buying on this breakout.

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JC

 

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