XLU & NEE - What happened to utilities?

BATS:XLU   SPDR Select Sector Fund - Utilities
This has been a rough month for utilities. We might be due for a slight bounce, but this sectors regulated pricing, dependence on debt, and previous attraction to income investors (now better served by treasuries) are all likely to be ongoing headwinds.

Some key shifts in trend are highlighted:
  • Beginning of 2022 the Fed starts easing rates higher and begins QT. This makes utilities attractive relative to the S&P
  • Mid-2022, rates continue higher, QT advances, and utilities and the broader market begin to move in correlation
  • October 2022 was peak tightness for global liquidity and some of us believed that we were close to peak rates.

The last milestone is where trend in utilities began to shift. QT pauses at this point and global net liquidity expands. This sends growth oriented equites to the performance that we witnessed through July 2023, and marks a time that I wished I started shorting utilities.

Note that SDP (ultra short utilities) appears to be in a parabolic wave 5. This makes me suspect potential for a reversal and a bounce in utilities, but I would view this as an opportunity to exit and reconsider either XLU or SDP after the ABC correction.


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