Which sector has been leading the rally so far in 2024?
One market sector has outperformed all others so far this year—and it’s probably not the one you think.
Long viewed as relatively “safe” and boring investments, utility stocks have recently been all the rage. The S&P Utilities Select Sector index has soared 28.7% year to date—outpacing the broader S&P 500 by nearly eight percentage points, as seen in the chart.
Utility Stocks Are Leading the Pack This Year
Source: Bloomberg, calculations by Horizon Investments, data as of September 20, 2024. Indices are unmanaged and do not have fees or expense charges, and dividend reinvestment makes no assumption about taxes, both of which would lower returns. It is not possible to invest directly in an unmanaged index. Please see the attached disclosure for index descriptions.
So, what’s transformed this traditionally steadfast sector into 2024’s outperformer? One key driver is artificial intelligence. Thanks to the massive energy infrastructure needed to power tech data centers, many investors see utility stocks as an alternate way to participate in the AI boom that’s made Nvidia and other technology companies the darlings of Wall Street.
Last week, Constellation Energy announced it would restart its long-dormant Three Mile Island nuclear plant after Microsoft agreed to buy power from the plant to run the firm’s data centers and pursue its climate targets.
Other reasons utility stocks have gotten a boost lately:
- Falling interest rates: Utility stocks are particularly sensitive to interest rates due to their relatively high dividend yields and utility companies’ capital-intensive nature. Utility stocks generally benefited after the 10-year Treasury yield peaked in April, and predictions for lower rates grew throughout the year.
- Downside mitigation: Utility stocks can be seen as more defensive investments, and held up well during the periods of market volatility we saw this summer.
The upshot: We see many attractive investments beyond the handful of mega-cap stocks that received a lot of attention this year. Diversification can provide investors flexibility while supporting investment goals.
This is not a recommendation to buy or sell any security. This material does not contain sufficient information to support an investment decision, and it should not be relied upon for investing purposes. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that all investing involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Past performance may not be a reliable guide to future performance.
The S&P Utilities Select Sector Index includes companies from the following industries: electric utilities; multi-utilities; independent power producers & energy traders; and gas utilities. The S&P 500 Total Return Index is a total return index that reflects both changes in the prices of stocks in the S&P 500 Index as well as the reinvestment of the dividend income from its underlying stocks. Reference to an index does not imply that any account will achieve returns, volatility, or other results similar to that index. The composition of an index may not reflect the manner in which a portfolio is constructed in relation to expected or achieved returns, portfolio guidelines, restrictions, sectors, correlations, concentrations, volatility, or tracking error targets, all of which are subject to change. It is not possible to invest directly in an index. Information obtained from third party sources is believed reliable but has not been vetted by the firm or its personnel.
Information obtained from third-party sources is believed to be reliable but has not been vetted by the firm or its personnel.This commentary is written by Horizon Investments’ asset management team. Past performance is not indicative of future results. Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This report does not attempt to examine all the facts and circumstances that may be relevant to any company, industry, or security mentioned herein. We are not soliciting any action based on this document. It is for the general information of clients of Horizon Investments, LLC (“Horizon”). This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice, or recommendation in this document, clients should consider whether the security in question is suitable for their particular circumstances and, if necessary, seek professional advice. Investors may realize losses on any investments. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. All investing involves the risk of loss.
The investments recommended by Horizon Investments are not guaranteed. There can be economic times when all investments are unfavorable and depreciate in value. Clients may lose money. This commentary is based on public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. The opinions expressed herein are our opinions as of the date of this document. These opinions may not be reflected in all of our strategies. We do not intend to and will not endeavor to update the information discussed in this document. No part of this document may be (i) copied, photocopied, or duplicated in any form by any means or (ii) redistributed without Horizon’s prior written consent. Forward-looking statements cannot be guaranteed. Other disclosure information is available at www.horizoninvestments.com.
Horizon Investments and the Horizon H are registered trademarks of Horizon Investments, LLC
©2024 Horizon Investments, LLC.
