Utilities are downgraded to neutral by Wells Fargo despite being a top sector performer

Wells Fargo’s equity research team downgraded Utilities to neutral from overweight, even as the sector has been a top performer in 2024. The bank noted excessive negative sentiment and an easing in oversold technicals from late-2023.

Wells Fargo’s Christopher Harvey expressed three reasons for the downgrade decision:

First: “The sector no longer is a non-consensus oversold group as it was in late 2023.” So far, Utilities have returned investors +25.8% in 2024, compared to the S&P 500’s (SP500) +19.1%.

Second: “The risk-aversion bid we expected (due to event risk/uncertainty) is now priced in.” The bank added that around the market, low-volatility factors/stocks have strong YTD performances.

Third: “The rates market appears to have already priced-in this year’s monetary easing, with the 2yr UST yield at 3.55%, the 2024 Fed dots at 4.375%, and Fed Funds at 4.75%-5.00% following Wednesday’s FOMC decision.”

For investors that are tracking the investments into and around the power grid, they may look to further analyze utilities-based stocks and exchange-traded funds for further details. Outlined below are some popular names along with each year-to-date performance.

Utilities Stocks: NextEra Energy (NEE) +23.5%, Southern Company (SO) +26.9%, Duke Energy (DUK) +19.4%, Constellation Energy Corporation (CEG) +71.3%, American Electric Power Company (AEP) +27.1%, Dominion Energy (D) +22.1%, and Vistra Corp. (VST) +136.7%.

Utilities ETFs: Select Sector SPDR Fund ETF (NYSEARCA:XLU) +23.9%, Vanguard Utilities Index Fund ETF (VPU) +23.7%, Fidelity MSCI Utilities Index ETF (FUTY) +23.6%, iShares U.S. Utilities ETF (IDU) +24.2%, and the Invesco S&P 500 Equal Weight Utilities ETF (RSPU) +22.4%.