Broad Utility Breadth Offsets Heavyweight Drag in Flat Session

The exchange-traded fund Utilities Select Sector SPDR Fund (XLU) closed 0.0% on Wednesday, September 16, masking positive internal breadth across the sector. While 70.0% of the stocks in the sector gained ground, dragging from heavyweights held the cap-weighted Utilities sector at 0.0%. An equal-weighted measure of the group stood at +0.2%, showing that mid-sized and smaller power providers did more of the work than the group's largest names. That split unfolded as investors rotated toward defensive shares after the Federal Reserve lifted its benchmark interest rate by 25 basis points, even as higher Treasury yields checked broader sector upside.

The divergence at the top of the sector explains the stall in XLU, which closed at $41.32. The sector's primary drag came from Nextera Energy Inc (-0.9%), whose slide weighed heavily on the cap-weighted fund. In contrast, gains were led by PG&E Corp (+1.4%) and NRG Energy Inc. (+1.3%). Despite the heavyweight drag, utilities held up better than the broader market, where major indexes slumped following the monetary policy announcement, leaving utilities among the few resilient groups as 3 of the 11 sectors rose.

Across Utilities Select Sector SPDR Fund, which holds $21.8 billion, the portfolio's quality profile remains concentrated in lower tiers. EasyAlpha grades the stocks in the sector against their industry peers, and only 22.7% of the fund's graded weight sits in companies graded A or B. Companies graded A or B have stronger fundamentals and historically have carried a lower risk of large drawdowns than companies graded D or E.

The flat session comes against a difficult multi-month backdrop for the sector. Over the past month, XLU stands at -6.5%, while its return over the past one hundred sessions is -10.5%. Over longer horizons, the pressure is more pronounced, with the fund at -11.6% over the past six months and -50.9% over the past twelve months.