Utilities Fall as Rising Yields and PG&E Weigh on Sector

On Friday, August 28, breadth across the Utilities sector collapsed as only 6.5% of its member companies advanced. The exchange-traded fund Utilities Select Sector SPDR Fund (XLU) dropped -1.0% to close at $42.73. The cap-weighted sector fell -1.0%, matching the equal-weighted drop of -1.0%. That alignment shows that selling was uniform across companies of all sizes rather than concentrated in a few large holdings. The broad-based retreat followed hawkish remarks signaling that borrowing costs could stay higher for longer, which pushed bond yields upward and reduced the relative appeal of dividend-yielding equities.

PG&E Corp (-7.5%) delivered the sector's steepest decline. The California power provider tumbled after state lawmakers blocked proposed wildfire liability reforms that would have restricted insurers from pursuing subrogation claims against utilities. The legislative setback left the company facing ongoing exposure to substantial wildfire-related liabilities, compounding the wider pressure on power companies from rising Treasury yields.

Gains were sparse across the sector, with only regulated water and electricity providers finding modest support. American Water Works (+1.2%) led the handful of advancers, followed by Consolidated Edison Inc (+0.7%). The group lagged the broader market, where 5 of the 11 sectors rose. Over the past month, XLU is down -4.3%.

For investors using Utilities Select Sector SPDR Fund as their vehicle for the sector, the fund manages $23.1 billion with an expense ratio of 0.08%. EasyAlpha grades each company against its industry peers. Across the fund's graded holdings, 26.8% carries grades of A or B. Historically, companies graded A or B show stronger fundamentals and a lower risk of large drawdowns than those graded D or E. That leaves the majority of the fund concentrated in companies with average or below-average peer standing.