“Starting in June 2004, the Fed began hiking rates a quarter of a percentage point at every Fed meeting. Instead of tumbling, utilities rallied strongly. The S&P 500 utilities index rose 32% during the first year of rate hikes, while the broader Standard & Poor’s 500 rose just 8.2%,” according to Barron’s.
XLU, the largest utilities ETF by assets, currently sports a P/E ratio of 15.5. While that is above the long-term average of 15.2, it is, as Barron’s notes, a discount to rate-sensitive real estate investment trusts (REITs) and the S&P 500.
Utilities Select Sector SPDR
Tom Lydon’s clients own shares of XLU.