Utilities fall -2.3% as rising bond yields pressure the sector

On Friday, August 21, the Utilities sector declined -2.3% as rising bond yields triggered selling across income-sensitive stocks. AP News reported that the 10-year Treasury yield rose to 4.73% amid persistent inflation worries and geopolitical tensions. Dow Jones Newswires explained that climbing yields create pressure on utilities by increasing borrowing costs and reducing the relative appeal of dividend yields compared to government debt. Reuters noted that utilities ended the session as the weakest performer among S&P 500 sectors.

The retreat reached every corner of the group during Friday's session. Breadth was entirely negative, with 0 of 31 advancing on the day. The cap-weighted sector drop of -2.3% closely matched the equal-weighted return of -2.4%, indicating that selling pressure was distributed uniformly across both heavyweights and smaller utilities. For investors holding the sector, the Utilities Select Sector SPDR Fund (XLU), an exchange-traded fund, fell -2.3% to close at $42.77. The session extended a difficult stretch for the fund, bringing its return over the past month to -7.4%.

Individual stocks throughout the sector struggled to find footing throughout trading. Sempra Energy (-5.1%) posted the steepest decline among index members on the session. At the other end of the list, even the day's best performers failed to generate positive returns, with The AES Corporation (+0.0%) and Constellation Energy Corp (-0.0%) merely finishing flat.

EasyAlpha grades each company against its industry peers. 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. Across the Utilities Select Sector SPDR Fund, EasyAlpha grades 99.7% of the portfolio's weight. Companies graded A or B account for 27.7% of those graded assets, leaving the remaining share in companies graded C, D, or E.