The Riskalyze Report: Advisors buy into Utilities rally

February 26th – March 4th

Josh here – Utilities are back in vogue, which is curious given the rate hike certainty now on display in the Fed Funds futures market (100% chance of a raise, the traders believe). But here’s something even more interesting – the utilities sector is the only S&P 500 sector with a negative correlation to the index over the last month. And that doesn’t mean it went down – it actually gained 2.5% vs the SPX’s 3% gain.

As Nick Colas of Convergex explains, the Utes simply zigged when the market zagged:

Over the past 30 days, US large cap Utilities have been negatively correlated to the price action in the S&P 500 to the tune of (25.3%).  It is the first negative reading we’ve seen since we started tracking this data on a monthly basis back in October 2009…the Utility sector did get pretty close to zero correlation twice: June 2014 (5.3% correlation to the S&P 500) and August 2016 (2.4%).  But this is the first reading below the zero line. 

According to Nick, the leading sectors – financials, tech and industrials – have seen correlations to the market spike up to 80%. But there is money to be elsewhere, utilities being a case in point.

Just above the utilities in the winners column, we see a somewhat opposite bet – floating rates. I’m guessing these two things do not have the same buyers. Now we got ourselves a ballgame.

*(to state the obvious, Riskalyze does not share client sensitive data with me or use animals in testing).