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What’s the Deal With Utilities Right Now?

Last week we told you how dwindling stock market volatility, as tracked by the VIX Short-Term Futures ETF (NYSEARCA:VIXY), and the insatiable appetite for high-risk debt, as tracked by the SPDR Barclays Capital High Yield Bond ETF (NYSEARCA:JNK), is characterizing the market’s latest episode of fearless risk-taking.

This time around, there’s another piece of evidence that confirms this scary trend.

The chart below shows how S&P 500‘s utilities sector, as tracked by the Utilities SPDR (ETF) (NYSEARCA:XLU), are on the verge of cracking below its 200-day moving average, which signals that conservative utility stocks are losing favor among stock market participants.

Utilities are a defensive industry sector sought by conservative investors for steady dividends and minimal volatility. XLU is already trading below its 50-day moving average and a break below the 200-day moving average could be next.

Utilities were among our top exchange-traded fund picks in 2014. The sector gained around 28% and easily outperformed major stock benchmarks such as the iShares S&P 500 Index (ETF) (NYSEARCA:IVV). Along the way, investors bagged dividend yields near 3% to add to their gains.

While falling interest rates last year was great for utilities, 2015 has been a very different story. Utilities are now the worst-performing sector in the S&P 500 and have lost almost 5% year-to-date.

Still, the worst may not be over.

20150311 XLU

If the stock market’s ecstasy with aggressive risk-taking remains, further losses could be ahead for conservative industry sectors like utilities.

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