Utilities are Bear Market Champions So Far

Stocks’ summer rally swung into reverse starting mid-August. And with the Federal Reserve pushing hard against stubbornly high inflation, it’s unlikely we’ve seen maximum damage or duration of what’s looking more and more like a real bear market.

Among the very few pockets of strength are regulated utilities. Even as the S&P 500 is again at a -17 percent year-to-date loss and income benchmark iShares Select Dividend ETF is in the red by -1.6 percent, the Dow Jones Utility Average is well in the black with a 5.66 percent total return.

All five reasons I’ve cited this year for utilities’ relative strength are still very much in play. That’s ongoing re-shoring of investment and manufacturing to the US, investors’ preference for domestic business, low relative valuations, recession resilience and now unprecedented federal tax credits from the Inflation Reduction Act.

There are few examples historically of sectors emerging entirely unscathed from a real bear market—defined as deep enough to do meaningful damage to real wealth, and long lasting enough to change investor behavior. The feature article highlights how utilities fared in major downturns since World War II, what we might expect this time around and where greatest risk and safety lie.