{"id":2070461,"date":"2023-10-17T15:16:02","date_gmt":"2023-10-17T19:16:02","guid":{"rendered":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/investors-avoid-utility-stocks-in-2023\/"},"modified":"2023-10-17T15:20:28","modified_gmt":"2023-10-17T19:20:28","slug":"investors-avoid-utility-stocks-in-2023","status":"publish","type":"post","link":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/investors-avoid-utility-stocks-in-2023\/","title":{"rendered":"Investors shun utility stocks in 2023."},"content":{"rendered":"<aside class=\"mashsb-container mashsb-main mashsb-stretched\"><div class=\"mashsb-box\"><div class=\"mashsb-count mash-medium\" style=\"float:left\"><div class=\"counts mashsbcount\">12<\/div><span class=\"mashsb-sharetext\">SHARES<\/span><\/div><div class=\"mashsb-buttons\"><a class=\"mashicon-facebook mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/www.facebook.com\/sharer.php?u=https%3A%2F%2Fwww.conservativenewsdaily.net%2Fbreaking-news%2Finvestors-avoid-utility-stocks-in-2023%2F\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Facebook<\/span><\/a><a class=\"mashicon-twitter mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/twitter.com\/intent\/tweet?text=&amp;url=https:\/\/www.conservativenewsdaily.net\/breaking-news\/?p=2070461&amp;via=ConservNewsDly\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Twitter<\/span><\/a><a class=\"mashicon-subscribe mash-medium mash-nomargin mashsb-noshadow\" href=\"#\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Subscribe<\/span><\/a><div class=\"onoffswitch2 mash-medium mashsb-noshadow\" style=\"display:none\"><\/div><\/div>\n            <\/div>\n                <div style=\"clear:both\"><\/div><\/aside>\n            <!-- Share buttons by mashshare.net - Version: 4.0.47--><blockquote>\n<div data-post-content=\"true\" class=\"post_content\" id=\"post_content\">\n<p>Investment portfolios used to heavily rely on utility stocks, which were considered\u2063 a safe \u2062bet in the stock market. These <a href=\"https:\/\/www.conservativenewsdaily.net\/breaking-news\/investors-avoid-utility-stocks-in-2023\/\" title=\"Investors shun utility stocks in 2023.\">stocks\u200b historically offered low risk<\/a> and high yield. However, the landscape\u200b has changed.<\/p>\n<div class=\"my-5\">\n<p>Unlike \u2063growth stocks, utility stocks were popular among investors looking for\u200d steady dividends. Unfortunately, these once-reliable \u200ddividends have dried up. What caused this shift? And just how risky are utility\u200c stocks in 2023?<\/p>\n<h2>Utilities: Traditionally Stable<\/h2>\n<p>When it comes to lower-risk investments, many investors turn to utility stocks. After all, electricity is \u200ba necessity \u2063that people can&#8217;t live without. Regardless \u2062of the economy, consumers\u200b will \u2064always need to turn on the lights and heat their homes.<\/p>\n<\/div>\n<p>Most\u2062 utilities are regulated by state or federal policymakers, creating a higher barrier for competitors to enter \u2062the \u200bmarket and offer lower rates.\u200b In the \u2063United \u200cStates, utilities\u2062 operate as regional monopolies and are publicly traded.<\/p>\n<div class=\"shortcode\">\n<div class=\"border-comp-divider mb-4 mr-4 w-full max-w-[500px] border px-5 py-4 text-[16px] leading-[20px] text-[#262626] md:float-left\" id=\"in_article_related_stories\">\n<h2 class=\"mb-3 font-sans text-[16px] font-semibold uppercase leading-[19px] text-[#2F2F2F]\">Related\u2062 Stories<\/h2>\n<div class=\"mb-4 flex gap-2\">\n<div class=\"grow\">\n<div class=\"mb-1 line-clamp-2\">\n<a href=\"http:\/\/www.theepochtimes.com\/article\/stock-market-today-wall-street-rises-and-oil-and-gold-fall-as-some-of-last-weeks-moves-unwind-5511093?ea_src=author_manual&#038;ea_med=related_stories\"><\/p>\n<h3>Stock Market\u2063 Today: Wall Street Rises, and\u200c Oil and Gold Fall as Some\u200d of Last Week&#8217;s \u2063Moves Unwind<\/h3>\n<p><\/a>\n<\/div>\n<div class=\"text-comp-caption text-[14px] leading-[18px]\">10\/16\/2023<\/div>\n<\/div>\n<div class=\"shrink-0 basis-[120px]\">\n<a href=\"http:\/\/www.theepochtimes.com\/article\/stock-market-today-wall-street-rises-and-oil-and-gold-fall-as-some-of-last-weeks-moves-unwind-5511093?ea_src=author_manual&#038;ea_med=related_stories\"><\/a>\n<\/div>\n<\/div>\n<div class=\"mb-4 flex gap-2\">\n<div class=\"grow\">\n<div class=\"mb-1 line-clamp-2\">\n<a href=\"http:\/\/www.theepochtimes.com\/bright\/how-major-us-stock-indexes-fared-oct-16-post-5510912?ea_src=author_manual&#038;ea_med=related_stories\"><\/p>\n<h3>How Major US Stock Indexes\u2062 Fared Oct. 16<\/h3>\n<p><\/a>\n<\/div>\n<div class=\"text-comp-caption text-[14px] leading-[18px]\">10\/16\/2023<\/div>\n<\/div>\n<div class=\"shrink-0 basis-[120px]\">\n<a href=\"http:\/\/www.theepochtimes.com\/bright\/how-major-us-stock-indexes-fared-oct-16-post-5510912?ea_src=author_manual&#038;ea_med=related_stories\"><\/a>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<div class=\"my-5\">\n<p>Due to their reliable dividends and high yield, utility stocks have been a \u2062staple in many investment strategies.<\/p>\n<h2>Utilities Help S&#038;P 500 Fall in Third Quarter 2023<\/h2>\n<p>The \u2064S&#038;P 500 \u2063Index took a hit in the \u200dthird quarter of \u20632023, primarily driven by sectors affected by inflation and higher \u200cinterest \u2064rates. This included consumer staples, real \u2062estate, and utilities.<\/p>\n<p>Among these \u200dsectors, utilities experienced the \u200bsecond-largest loss \u200cin\u2063 the index, with a 10.09 percent drop throughout the quarter. Leading the decline were AES\u200d Corporation (AES), down 26.68\u2062 percent, \u200dand \u2064NextEra Energy (NEE),\u200d down 22.79 percent.<\/p>\n<\/div>\n<div class=\"my-5\">\n<p>However, the\u2062 downward trend for utility stocks was far \u2062from over.<\/p>\n<h2>Utility Sector Continues Decline<\/h2>\n<p>As \u200cof \u2062the \u2063first\u200b week of October 2023, the S&#038;P 500 utility sector had plummeted by 21 percent, experiencing a 12 percent drop\u200b in just two\u2064 weeks.\u2064 This underperformed the\u2064 broader index, which saw an 11 percent gain.<\/p>\n<p>NextEra Energy suffered a further decline \u2063of 52 \u200dpercent, while AES Corp. lost \u206437 percent.<\/p>\n<p>Moreover,\u2062 the once-healthy dividends provided \u2064by utility\u2063 companies are\u2064 disappearing. NextEra \u2063Energy \u200bPartners,\u200d a subsidiary of\u2062 NextEra\u200b Energy, slashed its dividend\u200d forecasts in half. This raises concerns among investors about the parent company&#8217;s earnings growth due to its subsidiary&#8217;s downward \u200bspiral.<\/p>\n<p>The utility sector hasn&#8217;t experienced \u2064such \u200da setback since 1999,\u200d when it fell\u2062 9 percent during\u200b the dotcom bubble burst.<\/p>\n<\/div>\n<div class=\"my-5\">\n<p>So, what caused this downward turn? There are\u200c several factors contributing\u200b to the nosedive in the \u200dutility sector.<\/p>\n<h2>US Treasury Notes \u200cClimb<\/h2>\n<p>Utility stocks typically attract \u200dinvestors\u200b with \u200ctheir dividends, which have historically hovered around 5 percent, offering low-risk and high-yield \u200creturns.<\/p>\n<p>For the past 15\u200b years, the utility sector has averaged \u2063about \u20621.05 percent \u2062points higher than the 10-year U.S. Treasury note, rewarding conservative\u200c investors for taking on the added \u200crisk of utility stocks. However, the yields \u200dhave changed.<\/p>\n<p>Risk-free Treasurys have seen <a href=\"https:\/\/www.conservativenewsdaily.net\/breaking-news\/china-to-leapfrog-u-s-as-worlds-biggest-economy-by-2028-think-tank\/\" title=\"China to leapfrog U.S. as world\u2019s biggest economy by 2028 \u2013 think tank\">rising interest rates<\/a>, with two-year Treasurys reaching 5.1 percent and the \u206210-year note \u200baround 4.8 percent.<\/p>\n<\/div>\n<div class=\"my-5\">\n<p>Conservative investors now have the option to purchase \u200brisk-free Treasurys and \u2062achieve similar returns\u200b to what they were seeing with utility stocks.<\/p>\n<h2>Inflation Hurts Utilities<\/h2>\n<p>High inflation rates have a\u2063 significant impact on\u2064 utility companies&#8217; borrowing costs. While this affects all\u2062 businesses, it\u2063 poses a major\u2062 issue for utilities \u2062due to\u200b their typically \u200chigh debt levels.<\/p>\n<p>Utility\u2064 firms have\u2062 substantial capital\u2064 expenditures and\u2063 high debt-to-market cap ratios. Maintaining and expanding utilities, \u2063especially renewable energy projects\u2064 and <a href=\"https:\/\/www.conservativenewsdaily.net\/breaking-news\/thousands-of-americans-try-to-take-advantage-of-bidens-solar-subsidies-they-cant-connect-to-a-power-grid\/\" title=\"Many Americans seek Biden's solar subsidies but can't access power grid.\">power grid upgrades<\/a>, require significant financing.<\/p>\n<p>While passing \u2064on\u200b the higher\u200c costs to \u200ccustomers\u200b is an option, regulations often prevent this. As a result, equity investors and bondholders end up bearing the\u200b costs.<\/p>\n<\/div>\n<div class=\"my-5\">\n<p>All these factors make utility companies less attractive to investors.<\/p>\n<h2>Fires Destabilize \u2064Utility\u200c Stocks<\/h2>\n<p>Utility companies\u2062 have\u2063 been\u2062 hit hard by the abundance of\u200b fires, which not only\u2063 destroy homes and buildings but also devastate a utility&#8217;s \u2064infrastructure.<\/p>\n<p>Furthermore, utility companies have faced blame for fires \u2063or \u200cat least exacerbating them. For example, Hawaiian Electric saw a collapse in its share price, plunging by 65 percent, due \u2064to potential litigation regarding its equipment&#8217;s role in spreading a fire.<\/p>\n<\/div>\n<div class=\"my-5\">\n<p>In 2019, California utility PG&#038;E filed for bankruptcy following a series \u200bof costly fires, with\u2064 outdated equipment being blamed.<\/p>\n<h2>Utilities Decline \u2062Could Be an Opportunity<\/h2>\n<p>Despite the current decline, utilities remain an essential industry.\u2064 People will always need electricity and heating in their homes. In fact, after the dotcom bubble burst in 2020, \u200butilities saw a 57 percent gain while the\u200c S&#038;P 500 dropped by\u2062 9 \u2062percent.<\/p>\n<p>Therefore, in hindsight, the bottom of the market decline presented a \u200cgreat\u2063 buying opportunity\u2062 for utility stocks.<\/p>\n<p>However, it remains uncertain \u2062how\u2064 long it will\u2063 take for the \u200dutility sector to\u200d recover. With\u2064 ongoing inflation and \u200chigh Treasury rates, many investors may adopt a &#8220;wait and see&#8221; approach.<\/p>\n<\/div>\n<div class=\"my-5\">\n<i>The Epoch Times copyright \u00a9 2023.<br \/>\n<br \/>\nThe \u2064views and opinions\u200b expressed are those of the authors. They are meant for general informational purposes\u2063 only and should not be \u200cconstrued or interpreted as a recommendation or \u2064solicitation. The Epoch Times does not provide investment,\u200c tax, \u2062legal, financial\u2062 planning, estate planning, or any other personal finance\u2063 advice. \u200dThe \u2062Epoch Times holds no liability for the accuracy or timeliness of the information \u2064provided.<\/i>\n<\/div>\n<\/div>\n<\/blockquote>\n<p> <\/p>\n<h2> \u200cHow does rate\u200c regulation\u2064 affect the\u2063 ability of\u200d utility companies to set prices for\u200c their services?<\/h2>\n<p><span>  \u2064Additionally, utilities are often subject to rate regulation, \u2062meaning they have \u200climited control \u2063over the prices they can \u2063charge \u2064customers. As a result, they \u2062may struggle to cover their increased\u200b borrowing \u2064costs, leading to a \u200cdecline in their profitability and, ultimately, their\u2062 stock prices.<\/p>\n<h2>Renewable Energy Competes<\/h2>\n<p>The rise \u2064of renewable energy sources, such as solar and\u2062 wind, has \u2063also played a role in the \u200bdecline \u200dof\u200b utility stocks. As these \u200dtechnologies become more cost-effective and\u200d efficient, they are increasingly seen as viable\u2062 alternatives to\u2062 traditional utilities.\u2062 This \u200chas led to \u200dincreased competition\u2064 for utility companies,\u2064 further pressuring their profitability.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Utility stocks were traditionally considered low-risk, high-yield investments. However, their reliability has diminished as dividends have decreased. Unlike growth stocks, investors held utilities primarily for dividends, which have now dried up. The reasons behind this shift in the once-reliable sector remain unclear.<\/p>\n","protected":false},"author":2307,"featured_media":2070462,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","fifu_image_url":"https:\/\/cndimages.nyc3.digitaloceanspaces.com\/breaking-news\/wp-content\/uploads\/2021\/01\/IMG_2758-scaled-1.jpg","fifu_image_alt":"","footnotes":""},"categories":[543],"tags":[],"class_list":["post-2070461","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-the-epoch-times"],"fifu_image_url":"https:\/\/cndimages.nyc3.digitaloceanspaces.com\/breaking-news\/wp-content\/uploads\/2021\/01\/IMG_2758-scaled-1.jpg","_links":{"self":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/2070461","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/users\/2307"}],"replies":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/comments?post=2070461"}],"version-history":[{"count":0,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/2070461\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media\/2070462"}],"wp:attachment":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media?parent=2070461"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/categories?post=2070461"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/tags?post=2070461"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}