Utilities ETFs underperformed the S&P 500 in August and the first half of September as the broad-market index eyed its highest levels since 2007. However, ETFs tracking utilities have jumped the past week as the rally sputters — a sign that investors are rotating into safer sectors.
Utilities Select Sector SPDR (NYSEArca: XLU) has gained 1.6% the past five sessions, while SPDR S&P 500 (NYSEArca: SPY) has shed 1.8%.
Utilities and consumer staples are seen as go-to defensive, conservative sectors that can provide shelter in rocky markets. Utilities are a conservative, mature sector that pays dividends – XLU has a dividend yield of about 4%.
Meanwhile, consumer staples companies sell necessities that consumers need in any economy. [Sector ETFs for Defense]
The underperformance of these two defensive sectors versus the S&P 500 over the summer was a tip-off that investors were growing more comfortable with risk. [Sector ETF Rotation Points to Risk-On]
In early August, we suggested investors keep an eye on utilities ETFs for clues on the market’s next move. [Utilities ETFs Can be a Market ‘Tell’]
The chart below is the relative performance of the utilities ETF against the S&P 500. The recent bounce shows that investors are moving closer to a risk-off mindset.
Full disclosure: Tom Lydon’s clients own SPY.
The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.