Shares of power producers plunged, with the utilities industry group of the S&P 500 suffering one of its biggest selloffs since the peak of Covid 19 fears in April 2020.
The SPDR Select Sector Utilities exchange-traded fund, which tracks the utilities industry group on the S&P 500, fell by 4.7%, and was down by more than 5% at one stage. The sector has a relatively strong correlation with the Treasury market, where the yield on the 10-year note rose to the highest level since 2007 on Monday.
“It [likely] has to do with interest rates because utilities in general are certainly debt intensive,” said J.D. Joyce, president of Houston money manager Joyce Wealth Management. In addition to utilities’ “cost of capital” going up, the Treasurys could now present a more attractive alternative for investors seeking steady returns, said Joyce.
“Why take the risk with hoping to receive a payment from utility, when you have a guaranteed payment from Uncle Sam on your U.S. Treasury?” Joyce added.
AES Corp., PG&E and Dominion Energy each fell more than 4%. NextEra Energy dropped 9%, while NiSource fell 6%.
Write to Rob Curran at [email protected]
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