Fri, Jun. 26, 3:43 PM
- Continued strong economic data (June consumer confidence beat expectations) and apparently optimism over a Greek deal getting inked this weekend make for good excuses for today's selling in fixed income.
- The U.S. 10-year yield is up seven basis points to 2.48%. Short-term rate futures continue to read more dovish than the Fed, predicting just one 25 basis point rate hike by year-end.
- TLT -1.2%, TBT +2.4%.
- Among the income favorites, utilities (XLU +0.6%) and equity REITs (IYR +0.2%) are being spared punishment today, leaving jittery investors to focus their selling in mortgage REITs.
- Also in the red are BDCs, led by Prospect Capital (PSEC -2.5%) and Fifth Street Finance (FSC -1.5%). American Capital (ACAS -1.3%), Medley Capital (MDLY +0.1%), THL Credit (TCRD -1.2%), PennantPark (PNNT -1%).
- ETFs: BDCL, BDCS, BIZD, FGB
Thu, Jun. 25, 6:15 PM
- Utilities stocks as a group have deteriorated nearly 12% YTD and 6% this month alone, but the carnage may not be over, WSJ's Spencer Jakab warns.
- Jakab notes that utilities stocks’ P/E ratio relative to the S&P 500 has dropped to ~91% today from 107% at the start of the year, but the figure remains well above the 73% average seen during the 2000-06 period.
- As interest rates have risen this year - and an eye toward what the Fed may do later this year - utilities stocks have been crushed, and the sector’s P/E has dropped back into the 15s; at one point last year, the P/E for utilities was higher than that of the S&P 500 as well as the technology sector.
- ETFs: XLU, UTG, IDU, VPU, GUT, BUI, FUTY, RYU, UPW, FXU, PUI, SDP, PSCU
Thu, Jun. 25, 4:17 PM
- The XLU underperformed again today, losing 0.7% and bringing its year-to-date decline to more than 12%.
- Looking at equity REITs, the IYR dipped another 0.95% and VNQ fell 1%. Both are down about 6% in 2015, and roughly 15% since late January. Some individual names: Spirit Realty (SRC -2.8%), Senior Housing (SNH -1.2%), HCP (HCP -1.4%), American Realty Capital (ARCP -3%), Gramercy Property (GPT -2.8%), Duke Realty (DRE -2%).
- In mortgage REITs, REM lost 0.9% today and is off 7% YTD. Some individual names: American Capital Agency (AGNC -1.2%), Armour (ARR -1%), CYS Investments (CYS -0.9%), Annaly Capital (NLY -0.8%), Invesco Mortgage (IVR -1.2%), Apollo Residential (AMTG -1.1%), PennyMac Mortgage (PMT -2.3%), Western Asset Mortgage (WMC -2.7%).
- The 10-year Treasury yield gained three basis points to 2.40%.
- Previously: Sell-side abandoning REITs as rates rise (June 25)
- ETFs: IYR, VNQ, DRN, URE, RQI, SCHH, ICF, SRS, RWR, RNP, JRS, KBWY, RFI, NRO, DRV, RIT, REK, RIF, FRI, FTY, PSR, DRA, FREL, WREI, IARAX
Wed, Jun. 24, 3:10 PM
- According to Bespoke Investment Group, the stocks in the S&P 500 in the highest-yielding decile are off 5.3% year-to-date, while those in the lowest-yielding decile are up 9.8%.
- Investors, writes Chris Dieterich, appear to be treating high-yielders like bonds, and selling as rates rise.
- Two examples in ETF land: Utility stocks were the best performers last year, but the XLU is off 11% in 2015. Another strong performer in 2014, the Vanguard REIT Index ETF (NYSEARCA:VNQ) is lower by 5%.
Fri, Jun. 19, 2:10 PM
Wed, Jun. 10, 9:57 AM
- PJM Interconnection, the largest U.S. electricity grid, wins approval from U.S. regulators for a plan to increase reliability at power plants and avoid a repeat of the shutdowns and price spikes during the unseasonably cold winter of 2014.
- Under the plan, which takes effect in 2018 after a capacity auction this year, generators that promise to be available during peak demand periods will receive higher payouts than other plants and will be penalized for failing to meet the commitments; the auction, planned for May, was delayed after FERC declined PJM’s initial proposal and asked for more information.
- The largest generators in PJM are trading higher at the open: NRG +4.2%, AEP +1.4%, EXC +3.1%, PEG +1.1%, DYN +7.2%.
- Also: TLN +4%, NEE +1.2%, PCG +0.7%, EE +1.5%, SO +0.5%, D +0.2%, DUK +0.9%, XLU +0.9%.
Tue, Apr. 21, 12:27 PM
- Capital spending by utility companies has soared across the U.S. - and so have customers' bills - despite the lower cost of natural gas, the main fuel used to generate electricity, WSJ reports.
- Annual capex by investor-owned utility companies has climbed to $103B in 2014 from $41B in 2004, while U.S. residential electricity prices have jumped 39% over the same period; the average price of a kilowatt-hour of electricity rose 3.1% last year to $0.125/kwh, far above the rate of inflation.
- Experts say there are several reasons for the surge in spending - including environmental mandates and the need to protect the grid against storms - but there's another major reason: It actually boosts their bottom lines as a result of a regulatory system that turns corporate accounting on its head.
- It is now common for utilities’ allowable profit to be capped at ~10% of the shareholders’ equity that they have tied up in transmission lines, power plants and other assets - so the more they spend, the more profits they earn, which critics say can prompt spending on projects that may not be necessary or to choose high-cost alternatives over lower-cost ones.
- ETFs: XLU, IDU, VPU, FUTY, RYU, UPW, FXU, PUI, SDP, PSCU
Fri, Apr. 17, 2:42 PM
- There's not much working as today's selloff is an especially broad one, with even stalwart safety sectors like utilities (XLU -0.5%) and REITs (IYR -0.7%), (REM -0.2%) in the red - though outperforming the S&P 500's 1.5% decline.
- Treasurys had spent most of the session lower as well following a stronger-than-expected inflation report, but yields have turned lower (prices higher) as the equity selloff intensified post-lunch. The 10-year Treasury yield is now off by four basis points to 1.85%. TLT +1.2%, TBT -2.4%
Thu, Apr. 16, 12:25 PM
- A federal appeals court begins hearing arguments today in two cases challenging the EPA’s far-reaching proposal to cut pollution from U.S. coal-fired power plants.
- The lawsuits - one from a coalition of 15 states and another brought by privately held coal miner Murray Energy - are part of a growing pushback from opponents who say the move is illegal and will kill jobs, hurt demand for coal and drive up electricity prices.
- The EPA rule proposed last year requires states to cut carbon emissions by 30% by 2030, giving customized targets to each state and leaving it up to them to draw up plans to meet the targets.
- Coal industry arguments will be helped by an unlikely ally: iconic liberal law professor Laurence Tribe, who is representing Peabody Energy (NYSE:BTU) and likens Pres. Obama's climate change policies to "burning the Constitution."
- ETFs: XLE, XLU, VDE, ERX, OIH, KOL, IDU, VPU, ERY, DIG, DUG, IYE, FENY, PXJ, RYE, FUTY, RYU, UPW, FXN, FXU, DDG, SDP
Thu, Apr. 2, 7:35 AM
- Expecting the S&P 500 (NYSEARCA:SPY) to gain only another 2% by year-end, and noting the index's pricey relative valuation, Goldman's David Kostin recommends investors instead by the Nasdaq 100 (NASDAQ:QQQ) - its expected earnings growth of 14% tops the S&P's 5%, but both indexes trade at similar P/Es.
- Breaking it down into sectors, Kostin recommends being Overweight information technology, energy (NYSEARCA:XLE), and telecom services (XTL, IYZ).
- Neutral: Health care (NYSEARCA:XLV), consumer discretionary (NYSEARCA:XLY), materials (NYSEARCA:XLB), and utilities (NYSEARCA:XLU).
- Underweight: Financials (NYSEARCA:XLF), consumer staples (NYSEARCA:XLP), and industrials (NYSEARCA:XLI).
Tue, Mar. 31, 2:18 PM
- The Obama administration offers details on how the U.S. proposes cutting greenhouse gases over the next decade, part of a formal submission to the UN ahead of a global effort this year to curb emissions of carbon dioxide.
- The proposed U.S. cuts rely mostly on previously announced rules for power plant emissions and vehicle efficiency, including a 26%-28% reduction in emissions by 2025 which was unveiled last fall in Beijing.
- Environmental groups generally praise the plan, particularly the fact that the pollution cuts can be achieved without action from Congress.
- ETFs: XLU, KOL, IDU, VPU, RYU, FUTY, UPW, PUI, FXU, SDP, PSCU
Wed, Mar. 25, 7:11 PM
- The U.S. Supreme Court appeared deeply divided after hearing oral arguments today on whether the EPA should have considered the costs to coal- and oil-fired power plants before deciding whether to subject them to regulation.
- The case concerns a 2011 EPA regulation that curtails mercury emissions; the rule, which takes effect next month for most plants, has forced companies to close aging facilities or install expensive scrubbing equipment.
- "It’s classic arbitrary and capricious agency action,” Justice Scalia said, and could lead to onerous costs for power companies.
- Chief Justice Roberts questioned Obama administration estimates that the actual benefits of the regulations would be at least $37B, which would easily exceed the anticipated $9.6B in costs.
- The court’s liberal justices generally voiced support for the EPA, with Justice Ginsburg saying Congress gave the EPA the discretion to make the best decision based on its expertise.
- The case could come down to Justice Kennedy, who suggested Congress gave EPA latitude but also asked tough questions of the EPA.
- ETFs: XLU, IDU, VPU, RYU, FUTY, UPW, FXU, SDP
Tue, Mar. 24, 11:49 AM
- Power companies have taken a pounding at the Supreme Court over the last decade, but will be looking to break that trend this week when the high court hears arguments on hazardous pollution caps that apply to 460 coal-fired power plants, including facilities owned by Southern Co. (NYSE:SO), American Electric Power (NYSE:AEP) and Peabody Energy (NYSE:BTU).
- The industry says the EPA did not adequately take into account what the EPA estimates will be $10B in costs imposed by the rules; the agency says the new standards are worthwhile because they will prevent 11K premature deaths per year and produce as much as $90B in annual benefits.
- Not all power companies are fighting the EPA rules: Exelon (NYSE:EXC), the largest U.S. owner of nuclear plants - which do not emit greenhouse gases - joined with other businesses to file a brief supporting the EPA’s actions.
- ETFs: XLU, IDU, VPU, RYU, FUTY, UPW, FXU, SDP
Fri, Mar. 20, 2:21 PM
Tue, Mar. 17, 6:37 PM
- Despite the prospect of a Fed rate hike, patient investors should stick with utility stocks for their attractive yields, regular earnings and dividend growth, two analysts tell CNBC.
- While higher rates may look foreboding, Hilliard Lyons analyst David Burks says recent history shows the sector could still outperform, noting that electric utilities beat the S&P 500 "by a fairly wide margin" during the 2004-06 period of higher rates when the Fed raised rates 16 times.
- Morningstar's Travis Miller thinks the sector's short-term performance will continue to reflect interest rate movements, but that investors willing to hold utilities two years or more can get strong absolute returns.
- Burks' favorite income pick is PPL, his top growth pick is NEE, and he likes AEP for total return; Miller's picks include SO, which he says has come down substantially and is now trading a discount, plus DUK and ITC.
- ETFs: XLU, IDU, VPU, RYU, FUTY, UPW, PUI, FXU, SDP
Fri, Feb. 13, 4:14 PM
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