Utilities Advance Modestly as Payroll Growth Slows

Our numbers on Friday, October 2 show positive breadth across the Utilities sector, with 74.2% of its S&P 500 members moving higher. Cap-weighted performance ended +0.4%, matching the +0.4% equal-weighted return, which indicates that gains were evenly spread across the constituent base rather than concentrated in the largest companies. Regulated utility operators led the advance, including American Water Works at +1.8% and CenterPoint Energy Inc at +1.6%, while NRG Energy Inc. lagged at -1.8%. Across the broader equity market, 11 of the 11 sectors rose. The sector's move followed labor data showing nonfarm payrolls increased by 29,000 in September, as the weaker employment reading cooled expectations for imminent Federal Reserve interest rate hikes.

The Utilities Select Sector SPDR Fund, an exchange-traded fund that tracks the sector under the ticker XLU, closed +0.3% at $39.81. For investors tracking the sector through the $21.8 billion fund, an expense ratio of 0.08% provides low-cost exposure, though Friday's quiet session does little to alter a challenging multi-month trajectory. That session leaves XLU at -6.7% over the past month, -11.9% over the past 100 sessions, -13.8% over the past six months, and -54.7% over the past twelve months.

EasyAlpha grades each company against its industry peers. Across the sector, 23.6% of the fund's graded weight sits in companies graded A or B. Companies graded A or B have stronger fundamentals, and historically they have carried a lower risk of large drawdowns than companies graded D or E. Because the majority of the fund's assets are concentrated in companies graded C or lower, the group as a whole reflects average quality relative to peer benchmarks.