Utility stocks are getting pummeled to a historic degree as interest rates rise to their highest level in more than a decade, according to technical indicators. Jason Goepfert, the founder of SentimenTrader, said in a post on X that Monday’s selling was so broad that a composite breadth indicator for utilities hit a level only seen in 2002, 2008 and 2020 over the past 33 years. And Strategas technical strategist Chris Verrone said in a note to clients that more than half of the sector is trading at 52-week low, describing the group as “about as flushed as you can get.” The widespread selling has caused a sharp decline for a sector that many investors typically view as defensive. The Utilities Select Sector SPDR Fund (XLU) ended Monday down 11% from Sept. 22. XLU 1M mountain Utilities stocks have fallen sharply in recent weeks as interest rates have climbed. The slide for utilities comes as Treasury yields have spiked in anticipation of a “higher-for-longer” rate environment. That is a change from the other three worst periods on record, which happened around the time of Federal Reserve rate cuts and were followed by positive total returns for utilities over the next one, three and 12-month periods, according to Goepfert. “The interest rate regime, I certainly think that’s what has caused this latest sell-off. Whether that’s going to prevent them rallying going forward, I’m not sure. My bet is it’s not. My bet is that we’ll follow through on its historical tendency to rally after an extreme like this,” Goepfert told CNBC. Rising interest rates are a double whammy for utility stocks. For one, their high-yield, low-growth profile leads many investors to treat them as bond proxies. But even with Treasurys yielding above 5%, the dividend income from utilities looks less attractive. Utility companies also tend to carry heavy debt loads. That means that, as they need to refinance their own debt or take on more to expand, they will now be paying a substantially higher interest expense than they did even two years ago. “They have this situation where they’re expected to pay out a certain yield. It’s never going to be enough to be competitive with where overnight money is right now. They’re not going to raise it to that level if they’re not there already. And then they have rate risk,” Ritholtz Wealth Management CEO Josh Brown said Tuesday on ” Halftime Report .” One of the biggest losers in the group has been NextEra Energy , which is the biggest holding in the XLU. Last week, NextEra’s sister company, NextEra Partners , announced it was cutting its distribution growth rate. NextEra Energy’s stock has dropped about 23% since Sept. 22, while shares of NEP are down nearly 50%. Brown recently sold his position in NextEra Energy, citing the distribution cut as a reason. NEE 1M mountain NextEra began to slide in late September. Even with the declines for utilities hitting historic levels, some Wall Street analysts see more downside for utility stocks. “Based on our valuation regression model, which accounts for both interest rates and growth among other factors, utilities still screen ~9% overvalued … Sentiment remains very tough for utilities as long as interest rates continue to move higher, as the longer term bullish fundamentals around the growth from the clean energy transition get discounted at ever higher interest rates,” UBS analyst Ross Fowler said in a note to clients Tuesday. — CNBC’s Michael Bloom contributed reporting.
