It is more than obvious that this year we have seen a huge rise in volatility and financial markets are starting to change.
Today the futures market has been halted and a few days ago we have seen one of the first inversions of the yield curve which suggest that things are, slowly, moving into a certain direction.
Although there is no need for alarm as yet, analysing the market tendencies is very important for the investor to realise what and when to re-balance the portfolio in order to be prepared before it is maybe too late.
In another article we have mentioned ways how investing in certain sectors of the market might give rise to potential benefits when everything else was pretty much down or flat.
One of the sectors which is heavily performing this year is the Utilities sector which is currently up around 7% (USD terms).
Today I wanted to make a quick graphical comparison of two well-known US companies in the sector (Nextera Energy and Excelon Corp) against the broader US market (S&P 500) using simple line charts.
Chart 1 (February turmoil high to low chart)
In the beginning of the year, the broad S&P 500 rallied heavily however in early February we had the first talks about tariff disputes between the US and China. As we can see, from the February highs the S&P 500 declined heavily -11% whilst the two utilities stocks still declined but at a lower pace (-8% and -7.5%).
Chart 2 (Low to High chart)
In this chart we are looking at the performance following the February lows. We have impressive numbers here with utility stocks performing strongly (+48% & +37%) whilst the S&P 500 “just” rose by 7%. We can deduce that at this point asset managers have started to move into defensive sectors (like utilities) as opposed to the more well-established sectors like Tech which were the main performance drivers during the last couple of years.
Chart 3 (Q4 chart)
This is another strong chart showing Q4 returns…In early October we all remember all the massive red days due to the dispute between Trump and the FED about the rising of rates, high valuations of the TECH market and the recurring trade war rhetoric. Here the volatility within the S&P, unlike with what happened after the February turmoil, increased and the US market is currently down by 8% for this quarter. Both utility stocks are up 8 & 9 % respectively.
Chart 4 (YTD) (see above)
Since the start of the year, the US market is pretty much flat (+0.16%) whilst both utility stocks are showing healthy gains of +19 and +17% respectively.
During the last couple of years investors might have become lazy into thinking that markets just go up. People might have thought that just by investing in well known, fancy and cool growth investments you just keep making money.
While that maybe partially true, the current market environment is starting to get more tricky and deep analysis is required before making investment choices.
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