Investing Topics: Interest Rates

Will Santa Claus visit utility stock investors this year? The sector was out of the gate quickly to start the fourth quarter of 2013. But concerns about the “tapering” off of Federal Reserve bond buying quickly slowed things down.

Will the Federal Reserve really “taper” off its easy money policy? The stock market has already reacted, with dividend-paying stocks leading the selling: The Dow Jones Utility Average is now flat for the fourth quarter, after being up better than 5 percent through mid-November.

Fear of rising interest rates again appears to be triggering selling of utility stocks. I’ve shown over and again that the sector’s so-called interest rate sensitivity is a false relationship over any recent period longer than a few weeks. Consequently, lower prices should be viewed as a buying opportunity for recommended stocks.

Taper talk is heating up again as Federal Reserve Chairman-in-waiting Janet Yellen’s fate is debated on Capitol Hill. Rate hike speculation, however, is having much less impact on essential services stocks than it did this past spring. And one big reason is strong third quarter results.

Taper talk is rife again in the financial media. And the all-too-familiar consensus is still that the Federal Reserve will abandon cheap money in the near future, driving up interest rates and sending dividend-paying stocks plummeting.

At its core, the stock market is about people. The numbers offer clues to the odds of company’s success. But as an analyst for nearly 30 years, I’ve found keeping tapped in to the market mood is no less essential.

You had questions about utility and telecom stocks, we had answers. 

Thus far, my strategy has been to populate the three Conrad’s Utility Investor Portfolios as quickly as I can with high-quality fare, without paying too much.

Utility stocks might be due for a pullback, but the risks that rising interest rates pose to the sector are overblown.