Gain in The Shares of Utilities May Be Fleeting

        By Saumya Vaishampayan
        The recent turmoil in financial markets abroad has been a boon for stocks that pay out hefty dividends. Any benefit, however, may prove fleeting.
        Shares of utility companies have advanced 3.1% in July, notching the biggest gain among the S&P 500's 10 sectors. Real estate investment trusts in the S&P 500 have jumped 2.8% in July. Meanwhile, the S&P 500 is down 0.6% in the same period.
        The gains hold over a slightly longer period as well. Utilities are the second-best performers over the last month, with an increase of 1.6%. REITs are up 1.4%, while the S&P has lost 1.4%.
        Recent gains in high-dividend stocks mark a reversal from most of 2015, when investors dumped these stocks on the premise that the Federal Reserve would raise interest rates down the road. Utilities and other high-yielding stocks have rallied in recent years as investors searched for yield in a low rate environment. These stocks tend to be sensitive to interest rates, with a drop in bond yields boosting the appeal of high-yielding shares.
        The yield on the 10-year Treasury note rose sharply Thursday to 2.301%, but it remains below its 2.335% level at the end of June.
        At the start of the year, many investors had expected an increase as early as June. Expectations for that first increase were pushed out after a first-quarter slowdown in growth and a sharp increase in dollar strength. Now, anxiety about Greece's future in the eurozone and global growth concerns have made some Fed officials uneasy about lifting rates in September, according to the minutes of the central bank's latest meeting.
        Fed-fund futures now point to December as the most likely month this year for a rate increase. The International Monetary Fund has called for the Fed to wait until 2016 to raise interest rates.
        "Recently, the volatility, particularly associated with Greece, has pushed money into the risk-off types of investments," says Alan Gayle, director of asset allocation at RidgeWorth Investments. "That's helped lower interest rates and is obviously favorable for the defensives like utilities," he added.
        Of course, a few weeks doesn't make a trend. Shares of utility companies have slumped 9.6% this year, the worst sector in the S&P.
        In the bigger picture, Mr. Gayle said he still expects rates to move higher and remains underweight utilities.
        (END) Dow Jones Newswires

        July 09, 2015 17:34 ET (21:34 GMT)

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