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Income Insights

Behind Utilities’ Retreat: It’s Technical

By Roger S. Conrad on Jun. 9, 2018

If worries about rising interest rates are hitting utility stocks so hard, why are shares of real estate investment trusts surging?

This week, the iShares US Real Estate ETF (NYSE: IYR) broke above its 200-day moving average. It’s now 11 percent above its February 9 bottom and just 2 percent below the December 2017 all-time highs.

The Dow Jones Utility Average in contrast is more than 13 percent lower than its mid-November 2017 high. And it’s dropped 5 percent so far this month alone.

Don’t look for an explanation in business performance. All 15 DJUA stocks met or beat both management guidance as well as most analyst expectations in the calendar first quarter of 2018. That contrasts with a spotty performance in the REIT sector, as retail shopping malls remain under pressure from online commerce.

Utilities have also dodged what some considered a major bullet by convincing state regulators to pass along the benefits of corporate tax cuts to customers in a way that also benefits earnings. Xcel Energy (NYSE: XEL), for example, now anticipates 5-year compound annual growth of 6.5 to 7 percent in its rate base, up from a previous projection of 5.5 to 6.3 percent.

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