The Fed Pivots: Stay Patient For Utility Profits

On September 18, the Federal Reserve cut the benchmark Fed Funds rate by 50 basis points, to a range of 4.75 to 5 percent. The long awaited pivot from “higher for longer” interest rates ignited an investment media frenzy. But since then, the Dow Jones Utility Average is up less than 1.5 percent, barely matching the S&P 500. That’s hardly surprising. From mid-April when rate cut talk started heating up until the Fed finally acted, the DJUA soared nearly 30 percent. So utility stocks were already pricing in the initial shift. Rest assured, the real benefits from the Fed’s reversal are only beginning for capital-intensive businesses like utilities. With the exception of the most heavily leveraged, companies had managed to keep investment plans funded by selling assets, winning rate increases, cutting operating costs, mergers and creative use of energy tax credits. But the Fed’s policy of higher for longer interest rates has been a constant challenge, even for the strongest utilities.