Strong Growth in Utilities Sector Led by Southern Company

Published on August 20, 2024, the utilities sector is traditionally viewed as a safe haven for investors seeking stability and reliable dividends. However, recent trends suggest that the current market dynamics may be shifting. The Utilities Select SPDR ETF (XLU) has demonstrated a clear inverse correlation with the U.S. 10-year yield, indicating a potential rally in utilities as yields decline. This trend aligns with a broader stock market rally, as evidenced by the performance of the S&P 500 ETF (SPY) alongside XLU. Despite the overall market's upward trajectory, XLU has yet to reach the all-time highs established in 2022, while the S&P 500 has surpassed its previous peaks. Notably, the ratio of XLU to SPY has shown an upward trend since February 2, suggesting a growing interest in utilities relative to other sectors. Within the utilities space, electric utility stocks have emerged as the strongest performers, with Pampa Energy, Southern Company, Pinnacle West Capital, NextEra Energy, and Duke Energy leading the pack. Southern Company, for instance, reported earnings per share (EPS) of $3.65 in 2023, with expectations for an 11% growth to $4.04 in 2024. As the sector prepares for upcoming Q3 earnings on October 31, the consensus EPS stands at $1.40. Analysts suggest that utilities may increasingly trade in tandem with technology stocks, particularly in the context of the ongoing industrial revolution, indicating that this time may indeed be different for the utilities sector.