Defensive, Yield-Generating Utilities ETFs Jump on Fed Rate Cut Bets | ETF Trends

Utilities sector and related ETFs surged Monday as investors looked to this defensive yield-generating segment on growing bets that the Federal Reserve will continue to cut interest rates.

The Utilities Select Sector SPDR (NYSEArca: XLU) was among the best performing non-leveraged ETFs of Monday, rising 4.2%. XLU was also trading back above its long-term trend line at the 200-day simple moving average.

Defensive utilities are typically more stable stocks since the demand for their services, notably electricity and gas, is steady from both consumers and businesses. Moreover, in a lower-for-longer yield environment, utilities come with more attractive above-average dividends.

The defensive and yield-generating utilities play is garnering greater attention as a growing number of people are looking to global central banks, including the Fed, to loose monetary policies and execute accommodative measures to obviate a potential economic downturn in response to a coronavirus outbreak.

For example, Goldman Sachs Group Inc. economists projected the Fed to cut rates, possibly before its next meeting, scheduled for March 16-17, MarketWatch reports.

Goldman economists Jan Hatzius and Daan Struyven anticipate a 50-basis-point cut at, or before, the meeting, along with an additional 50-basis-point cut in the second quarter.

Fed Chairman Jerome Powell said Friday that the central bank is “closely monitoring” the outbreak and “will use our tools and act as appropriate to support the economy.”

Furthermore, Goldman economists also expected rate cuts from the other central banks around the world, including Canada, the U.K., Australia, New Zealand, Norway, India, South Korea and Switzerland, as well as the European Central Bank.

“Specifically, we see a high risk that the easing we expect over the next several weeks occurs in coordinated fashion, perhaps as early as the coming week,” Goldman economists said in a note. “Chair Powell’s statement on Friday suggests to us that global central bankers are intensely focused on the downside risks from the virus. We suspect that they view the impact of a coordinated move on confidence as greater than the sum of the impacts of each individual move.”

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