The Utility Fund You’re Picturing Doesn’t Exist Anymore
On Monday’s show, I pulled up the top holdings in the Utilities Select Sector SPDR Fund (XLU): NextEra, Southern Company, Constellation, Duke, American Electric Power, Dominion, Sempra, Vistra, Entergy and Xcel Energy.
A lot of people think “utility” and picture ComEd, the company that sends the electric bill in Chicago.
That’s not what XLU is anymore.
Take Constellation (CEG). It’s restarting Three Mile Island Unit 1 under a 20-year deal to help power Microsoft’s data centers. And it sits in the same “boring” fund as your local electric company.
Why Rates Decide Whether This Trade Works
In the end, rates are what matter to most of the market.
Utilities feel it more than almost anybody. They borrow huge amounts of money to build plants and power lines, so higher rates make that borrowing more expensive. And when a Treasury bond pays a solid yield with no risk, a lot of investors will take the bond over a utility’s dividend.
So when rates climb, utilities get sold. When rates come down, the money comes back.
Right now, rates appear to have at least topped out briefly. Maybe they do go higher. But if we start seeing a bid in bonds, meaning buyers step back in and push yields lower, that’s when utilities stop being boring.
The Real Reason Bonds Are Creeping Higher
Treasuries have started to creep a little higher off the bottom. My read is that it’s the Treasury Department and the Fed giving all the big players a chance to get out of dodge so they can implement some of this stuff, because I know they want to.
Certainly, Treasury Secretary Scott Bessent does not want long rates the way they are. His department is already buying back up to $38 billion of older Treasury securities this quarter “for liquidity support.”
And who knows what Fed Chair Kevin Warsh is thinking. I love him, but he’s being opaque on purpose.
If Washington doesn’t move and rates keep climbing, utilities stay stuck, and you’ll be holding the most boring stock in your account for nothing.
The Signal To Wait For Before You Buy
Don’t buy utilities because they’re cheap and nobody likes them. Wait for Washington to make its move and for the bond market to catch a real bid. When it does, utilities stop sounding boring, and they’re one of the better trades I see into the end of the year and the first quarter of 2027.
Now, if you want to see how I handle exits in real time, Voz and I are trading live Tuesday through Thursday at 3 p.m. ET during The 3:05 Money Window.
Your only option,
Mark Sebastian
P.S. This weekend was my anniversary, and I spent it driving two and a half hours each way to Victoria, Texas, to watch my son get a yellow card for kicking a kid in the back of the leg on purpose. Should’ve been a red.
That ref missed the call. During The 3:05 Money Window, Voz calls the trade and we’ll call the exit, live on camera, Tuesday through Thursday at 3 p.m. ET. We never ask for a card. Grab your seat here