Utilities Drops on Broad Weakness and Surging Bond Yields

The Utilities sector finished -1.0% on Thursday, September 24, weighed down by weak internal participation as only 10.3% of member companies advanced. Inside Utilities Select Sector SPDR Fund (XLU), an exchange-traded fund tracking the group, companies graded A or B account for 27.6% of the portfolio. Downward pressure was broad across the sector: NRG Energy Inc. led decliners at -2.9%, while the strongest gainer, The AES Corporation, managed only +0.3%. The retreat came as benchmark Treasury yields jumped higher, with the 10-year yield reaching 5.22%. Pressure mounted across equity markets as Middle East uncertainty lifted oil prices and raised expectations for further rate hikes.

On Thursday, selling focused on rate-sensitive and oil-sensitive market segments as yields rose across maturities. The sector's cap-weighted return of -1.0% mirrored its equal-weighted return of -0.9%, confirming that losses were evenly distributed across large and small constituents alike. Across the broader market, 3 of the 11 sectors rose.

The sector's fund vehicle, XLU, closed -0.9% at $39.38. The fund holds $21.8 billion in net assets and charges an expense ratio of 0.08%, providing index-tracking access to the group. Gains were exceedingly rare among the fund's holdings, with Consolidated Edison Inc finishing at +0.1% alongside The AES Corporation as the only notable advancers in the basket.

Thursday's pullback adds to a protracted slump for the sector across multiple measurement periods. Over the past month, XLU has moved -9.1%, while its performance over the past 100 sessions stands at -15.1%. Over the past six months, the fund has returned -13.1%, and its move over the trailing twelve months stands at -54.3%.