The knee-jerk explanation for Thursday’s weakness is more political volatility; Trump attorney John Dowd is stepping down, alluding to continued turmoil in the White House. Investors are also still digesting Wednesday’s expected rate hike, parsing the new language with new chairperson’s Jerome Powell’s first such decision. Inflation may be a little less tamed than had been figured.
And to tell the truth, those things are legitimate causes for concern. A closer look at some usually-ignored data, however, suggests there’s more going on in investors’ minds than just some uncomfortable headlines though. And, it’s been going on for a little longer than just the past couple of days.
That’s a bigger-picture concern for the overall market.
We’ve talked about this before but it bears repeating now… you can tell a lot about how traders feels from seeing which stocks they’re buying, and which stocks they’re not buying. If they’re buying into defensive areas and shunning riskier growth stocks, they’re tending to doubts that may well lead to a self-fulfilling prophecy.
Great, but how does one do that sort of analysis effectively? Fortunately, we have a simple chart that helps us do this.
The graphic below is one regular BigTrends readers have seen before, comparing the percent returns of all the major market sectors over the course of the past twelve months. A close inspection reveals that all major areas have lost ground over the course of the past week, save one… utilities. It’s up for the timeframe in question, reversing weakness it solely experienced in December and January of last year when investors were more than happy to scratch their “risk on” itch.
In short, it’s a curious flight to safety.
Some might argue that the sudden rise in the value of utility stocks has more to do with changes in the interest rate environment. Namely, in that utility stocks are almost bonds in that they’re best known for steady dividend payments (like a bond coupon) rather than growth, falling interest rates have translated into rising utility stock prices.
