Utilities Finish -1.2% as Surging Yields Pressure the Sector

On Tuesday, September 15, Utilities breadth narrowed sharply, with 3.2% of sector members advancing as the cap-weighted sector closed -1.2% and the equal-weighted group moved -1.2%. The sector's exchange-traded fund, the Utilities Select Sector SPDR Fund (XLU), closed -1.2% at $41.33, dragged lower by PG&E Corp (-3.2%) while Vistra Corp. (+0.6%) and The AES Corporation (0.0%) were among the only holdings to avoid losses. Across the sector, 23.6% of the fund's weight sits in companies graded A or B. The retreat unfolded as government bond yields surged toward multiyear highs. In the bond market, the 10-year Treasury yield climbed after reaching 5.04%. Meanwhile, rising oil prices elevated broader market expectations for higher borrowing costs.

The identical move between the cap-weighted and equal-weighted metrics indicates that pressure was distributed evenly across both large and smaller utilities. Across the broader market, 2 of the 11 sectors rose.

The session continues an extended decline across the group. Over the past month, XLU is -6.7%, and the fund has recorded -10.3% across the chart's window. Over longer stretches, the fund is -12.3% over the past six months and stands at -51.8% over the past twelve months.

As the primary fund tracking the sector with $21.8 billion in net assets and an expense ratio of 0.08%, XLU concentrates the entire sector into a single holding. 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 23.6% of the fund is allocated to companies graded A or B, most of the fund's weight sits in the lower tiers of the peer group.