Portfolio Article

When the October issue of CUI posted, the Dow Jones Utility Average was underwater nearly -10 percent for the year. Now it’s close to even including dividends. That strong recovery also shows up in a brief scan of stock prices in this month’s Conservative Holdings, Aggressive Holdings and Top 10 DRIP tables. But it wasn’t exactly a buy everything moment either.

Utilities have been dropping for roughly a month. And despite the sector’s robust long-term outlook, it’s likely we’ll see lower prices still in the coming weeks.

The S&P 500 rose roughly 18 percent from a mid-June low to its summer high in mid-August. Since then, it’s given back about two-thirds of those gains—and is showing every sign of setting a new yearly low in the coming weeks.

The Dow Jones Utility Average has surged by roughly 150 points since mid-June. That’s a rally not a lot of people expected. And a good bit of the move followed something probably even fewer were looking for: The grand bargain between Senator Joe Manchin (D-WVA) and the White House that became the still-evolving “Inflation Reduction Act of 2022.”

First, let’s look at the record. For the first six months of 2022, the Conservative Holdings returned an average of 4.3 percent. The Aggressive Holdings were up 0.44 percent. And the Top 10 DRIPs—which feature a fair amount of overlap with the Conservative Holdings—were ahead by 5.31 percent.

Is this a bear market rally, or the start of another leg of the bull market that started in March 2009? How you answer that question will probably depend on what stocks you currently own.

Last month, I highlighted five key drivers of the Dow Jones Utility Average’s early 2022 rally past the long-elusive 1,000 mark. Unfortunately, over the past month of so two major negatives have put a lid on upside. One is inflation pressure that’s up-ended the broad stock market, while accelerating the bond market’s decline.

Utilities were the last major sector to make a post-pandemic high. But in late March, the Dow Jones Utility Average smashed through the once unassailable 1,000 level and hasn’t looked back yet.

First off, everything I said in last month’s Portfolio discussion about reliable dividend growth goes double now. Companies that have it will beat inflation and grow your wealth in coming years. Those that don’t won’t.

Inflation is back. How long it stays at the official January rate of 7.5 percent depends on myriad, shifting factors. But so long as it’s here, it’s imperative to seek some level of protection against the relentless, corrosive impact on wealth.