Investor Alert

June 20, 2019, 10:18 a.m. EDT

Utilities stocks inch lower as AES rally balanced by Treasury yield's drop

The utilities sector eased slightly Thursday, to buck a broader stock market rally, as a sharp drop in longer-term Treasury yields was balanced with a rally in AES Corp.'s stock (NYS:AES) after an analyst upgrade. The Dow Jones Utility Average (DJX:DJU) inched less than 0.1% lower, although 8 of 15 components traded up, while the Dow Jones Industrial Average (DOW:DJIA) jumped 222 points, or 0.8%. AES shares jumped 1.8% after Bank of America Merrill Lynch analyst Julien Dumoulin-Smith raised his rating to neutral from underperform, and raised his price target to $16.50 from $16. "We perceive upside to renewable development opportunities and expect [liquid natural gas]/logistics opportunities in Vietnam and the Atlantic Basin to drive future growth," Dumoulin-Smith wrote in a note to clients. Among other more-active utility stocks, Southern Co. (NYS:SO) edged up 0.1%, Exelon Corp. (NAS:EXC) was little changed and Dominion Energy Inc. (NYS:D) gained 0.1%. The yield on the 10-year Treasury note fell 3.1 basis points to 1.998%, the first move below the 2% mark since November 2016, amid increasing speculation that the Federal Reserve will cut interest rates. Utilities stocks usually rise when Treasury yields fall, and Treasury prices gain, as the sector's relative high yield makes then more attractive. The Dow utilities implied dividend yield is 2.94%, compared with the implied yield for the Dow Jones Industrial Average (DOW:DJIA) of 2.03%.

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