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Another day of sharp losses for utilities

  • Utility shares (XLU -3.6%) were among the day's worst performers, as the traditionally stable area continues its recent spike in volatility.
  • Among today's biggest decliners: AEP -5.6%, EXC -5.6%, ETR -5.4%, ES -5.3%, PPL -5.2%, FE -5.1%, XEL -4.2%, DUK -4.2%, NI -4.2%, EIX -4.2%, AEE -4.1%, CMS -4.1%, SO -4.1%.
  • Various reasons have been offered for the sector's swoon: the shutting down of industrial production is a threat to earnings prospects; cash flow will be hurt from weaker levels of business activity and utility bill payment forbearance, which raises concerns about debt repayment risk and the security of dividend payments; and general de-risking, as investors liquidate across all sectors.
  • S&P Global Ratings lowers its outlook for the North American regulated utility industry to negative, highlights the Covid-19 pandemic and the resulting uncertain economic climate.
  • The industry already was characterized by weakening credit quality even before the outbreak, and as the recession deepens, S&P says its mean rating for North American utilities could decline from A- to BBB+.
  • Nevertheless, "the utility industry will remain a high-credit-quality investment-grade industry," the ratings agency says.
  • ETFs: XLU, UTG, VPU, GUT, BUI, FUTY, IDU, RYU, FXU, UPW, SDP, PUI

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