The current collapse of the U.S. stock market – with the Dow Jones Industrial Average of so-called “blue chip” stocks down 7.8% or 2014 points on Monday – has clobbered energy equities across the board, including the broader S&P 500. The Wall Street Journal reported, “It was the first time the Dow lost more than 2,000 points in a session.”
The S&P was down 7.6% and the NASDAQ down 7.3%. A bear market appears certain.
The Journal reported, “All 11 sectors of the S&P 500 were down, led by energy, which slid 20%.” Oil stocks were clobbered by the decision of Saudi Arabia to both increase production and cut crude prices, a result of a dispute with Russia over production and pricing. The pending coronavirus pandemic has added to the uncertainty.
Analyst Lyn Graham-Taylor said, “The price war between major oil producers is ‘throwing petrol on the fire’ while investors are struggling to understand how deeply the viral outbreak will impact global supply chains and consumer spending.”
Many analysts have long viewed utilities as a safe investment haven with often regulated returns. Just a month ago, Investor’s Business Daily wrote, “A big surprise from the stock market this year is that utility stocks are outperforming the major indexes, even as the general market gets off to a good start in 2020. The Utilities Select Sector SPDR Fund (XLU), on ETF Leaders, is reflecting that strength.
“The ETF is up about 9% since the start of the year. It’s handily beating the S&P 500, which is up 4.6% for the year. Utilities are the second-best S&P sector in 2020, behind only technology.” Part of what was driving that performance is the low cost of borrowing, as utilities are heavy used of debt financing.
Analyst George Fisher said, “Historically, utility stocks have been considered a ‘safe’ sector during times of market upheaval. The steady, regulated earnings and higher dividend income can provide less volatility than the overall market, especially when compared to higher valued stocks, such as technology.”
Maybe then. Not now. The headline on Fisher’s Seeking Alpha article was “Utilities: Probably An Inadequate Safe Haven.”
On Monday morning, Seeking Alpha news editor Stephen Alpher wrote that UXL “is down 4.6% in premarket action despite the historic decline in interest rates.” At the closed of business Monday, UXL was down 4.5% (63.46 per share).
Some of Monday’s results for the best-valued utilities:
Next Era Energy, down 3.88%.
Duke Energy, down 4.51%.
Dominion Energy, down 6.19%.
American Electric Power, down 2.81%.
— Kennedy Maize