Chart of the Week - Utilities are the new Semiconductors

Some intriguing similarities (and key differences) as risks + opportunities light up

Something interesting is happening with what is traditionally one of the least interesting sectors of the stockmarket: Utilities.

Up more than +25% off the October 2023 low, beating the Nasdaq YTD, and up over 6% in May alone, the S&P 500 Utilities Sector is acting more like an AI stock than a staid old defensive.

And, well — maybe there’s some truth to that quip…

I polled folk why they were buying Utes and while most said as a defensive position (which they typically are) and cited the expectation of lower rates (and high dividend yields), a material portion cited AI.

And I looked into it, sure enough — the electricity sector within Utilities was breaking out relative to the rest (i.e. the electricity sector was driving the move …and electricity is over 65% of Utilities’ market cap). This is relevant because aside from computer chips, another big input into AI is electricity and natural resources.

If all the hype around Artificial Intelligence is to be believed, we are going to see an explosion in the number of datacenters as demand for compute rises potentially exponentially. Hence what was once a low-growth part of the market, becomes a new growth story.

Where this week’s chart gets really interesting is just before this move in Utilities, the market cap of Semiconductors reached an all-time high …while the same for Utilities reached an all-time low.

We don’t always get a sign from the heavens when it comes to markets or life for that matter, but if you ask me, this sure looks like a sign! Certainly, at least a prompt to take a closer look as the word rotation increasingly comes to mind.

Key point:  Keep an eye on Utilities as the market looks for the next AI story.

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Topics covered in our latest Weekly Insights Report

Aside from the chart above, we looked at several other charts, and dug into some intriguing global macro & asset allocation issues on our radar:

• Global Equities: rotation setups and warning signs

• Lending Standards: changing credit conditions globally

• Credit Spreads: outlook for credit spreads (macro, value, triggers)

• Treasuries - BULL: looking at the bull case for bonds (key charts, risks)

• Treasuries - BEAR: higher for longer risk, prospect for a push higher

• Utilities: a look at what’s going on in Utilities (and defensives)

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Thanks for your interest. Feedback and thoughts welcome.

Sincerely,
Callum Thomas
Head of Research and Founder at Topdown Charts

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