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UTILITIES THRIVE ON FALLING RATES AND RISING VIX

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Utilities have emerged as the year's strongest sector. The chart below shows the Utilities Sector SPDR (XLU) trading near a new 52-week high while the S&P 500 (solid line) is closer to a new lows. The rising XLU:SPX relative strength ratio (below chart) also shows the superior performance of utilities this year. That's not surprising since utilities are a defensive stock group that usually attracts money during a market downturn (as do staples and healthcare). But there's another dynamic driving money into utilities -- falling bond yields. The falling green line shows the 10-Year T-Note Yield (TNX) falling all year. With bond yields having fallen below 2% for the first time in 60 years, the utilities' yield of 4.3% looks pretty attractive. Falling bond yields are also symptomatic of economic weakness which is bad for the rest of the stock market. In a climate of a weak stock market and falling bond yields, utilities offer a relatively safe haven. People still have to use electricity in good times and bad. And, as I suggested a couple of weeks ago, defensive stocks do better when the VIX is rising.

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- John

John Murphy
About the author: is the Chief Technical Analyst at StockCharts.com, a renowned author in the investment field and a former technical analyst for CNBC, and is considered the father of inter-market technical analysis. With over 40 years of market experience, he is the author of numerous popular works including “Technical Analysis of the Financial Markets” and “Trading with Intermarket Analysis”. Before joining StockCharts, John was the technical analyst for CNBC-TV for seven years on the popular show Tech Talk, and has authored three best-selling books on the subject: Technical Analysis of the Financial Markets, Trading with Intermarket Analysis and The Visual Investor. Learn More
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