Is It Too Late to Jump Aboard Utilities?

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Light trading characterized Monday’s push higher as the S&P 500 eked out a new record close. But the Dow Jones Industrial Average fell, breaking a seven-day winning streak.

While U.S. stocks were in vogue, European stocks faltered due to political problems in Greece. After a third vote, Greece failed to elect a prime minister, prompting snap elections on Jan. 25. This development could lead to a recurrence of Greece’s sovereign debt crisis, but The Wall Street Journal deemed that outcome “unlikely.”

Part of the reason for the U.S. market’s strength versus Europe is that the U.S. economy grew at an annual rate of 5% in Q3 — its best in 11 years.

Crude futures fell again, down 2.1% to $53.61 a barrel. Lower oil prices are thought by many economists to favor industrial growth, with the exception of energy companies.

But even the U.S. markets were sluggish Monday with low holiday volume and a mixed outcome. There was little in the way of economic news to move stocks along. Today, Consumer Confidence for December will be released with the consensus expecting a reading of 93.8, up from 88.7 in November.

Gilead Sciences, Inc. (GILD) rose 3.7% after it reached an amended agreement with Johnson & Johnson (JNJ) for the development of a once-daily treatment for HIV. American Apparel Inc (APP) jumped 1.9% on its consideration of a sale of the company.

At Monday’s close, the Dow Jones Industrial Average fell 15 points to 18,038, the S&P 500 gained 2 points at 2,091, the Nasdaq was unchanged at 4,807, and the Russell 2000 rose 4 points to 1,219.

Volume was light with the NYSE’s primary market trading 550 million shares with total volume of 2.4 billion shares. The Nasdaq crossed a total of 1.2 billion shares. On the Big Board, advancers outpaced decliners by 1.4-to-1, while on the Nasdaq, advancers and decliners broke even.

DJU Chart
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Chart Key

Who would have believed a prediction that the staid Dow Jones Utility Average would beat out virtually every other major index. Ending on Dec. 31, 2013, at 490.57, it rose to close at 643.33 on Monday, a gain of over 31%, plus dividends amounting to another 3% to 4%.

But with the index riding its upper Bollinger Band to another new high Monday and MACD overbought, I’m afraid that it’s too late to jump aboard this old train.

VIX Chart
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A move higher by the CBOE Volatility Index (VIX) usually indicates that puts are being bought by institutional traders to hedge against a possible decline in the stock market.

Conclusion

With the Dow Jones Utility Average going parabolic and riding its upper Bollinger Band to new highs and the VIX jumping 3.9%, it appears that some large investors are preparing for a January adjustment.

The always astute Jeffrey Saut of Raymond James noted in his market letter Monday that it may be time to “rebalance” portfolios for those stocks that have run to P/Es that may not be sustainable in January. He noted that health care stocks are above 23x earnings, consumer discretionary are at 21.5x, and consumer staples are at 20.9x. The cheapest, and thus the most attractive for long-term investors, are energy stocks at 13.4x, telecommunications at 13.7x and financials at 14.8x.

It is at the very least time to put some cash back into the till. Nothing goes up forever.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.


Article printed from InvestorPlace Media, https://investorplace.com/2014/12/daily-market-outlook-late-jump-aboard-utilities/.

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