Amid Volatility, Utilities Emerge as a Backdoor AI Play | ETF Trends

The recent volatility in the S&P 500 could be shaking out investors, but the utilities sector is offering an ideal safe haven. If volatility persists, traders may want to give utilities a closer look as not only a safe haven play, but also a backdoor play on artificial intelligence (AI).

Of course, one of the prime reasons for volatility is the ongoing higher-for-longer narrative as the U.S. Federal Reserve continues to zero in on that 2% inflation rate target. The central bank elected once again to keep interest rates unchanged as economic data continues to run hot, putting interest rate cuts on the back burner once again.

“In recent months, there has been a lack of further progress towards the committee’s 2% inflation objective,” the Fed in a policy statement.

In the meantime, trading news will continue to circulate what the Fed may or may not do given the most recent economic data.

“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” the statement said further.

Nonetheless, traders can still find opportunities in sectors like utilities, which can piggyback off the popular investment theme of AI. As more consumers continue to use AI, the current infrastructure that powers AI will require higher energy consumption. In turn, this should help boost utilities.

“Power demand from data centers has already been humongous, then came the AI hype and the need for power skyrocketed,” said Manju Naglapur, senior vice president and general manager for cloud, applications, and infrastructure solutions at Unisys Corp. “With all the money spent on data centers, the power consumption will increase massively.”

UTSL Chart

UTSL data by YCharts

Triple Leverage Utilities

For traders looking to add leverage to the utilities sector, they can take a look at the Direxion Daily Utilities Bull 3X Shares (UTSL). That extra juice from the triple exposure could amplify profits should the utilities sector continue to see strength. With the Fed opting to push rate cuts further into the year or even possibly next year, UTSL has been trending higher to reach its current 15% year-to-date gain.

UTSL seeks daily investment results equal to 300% of the daily performance of the Utilities Select Sector Index. The index contains companies from the utilities sector that include the following industries: electric utilities; multi-utilities; water utilities; independent power producers and energy trades; and gas utilities.

For more news, information, and analysis, visit the Leveraged & Inverse Channel.