Why Are Utility Stocks Down and at Risk?
Why are utility stocks down as the broader market seems to be regaining momentum? Many investors are looking for answers after the roller-coaster months of March and April.
Major utility stocks nearly bottomed out in March. In fact, some companies fell upward of 50% in just over a week’s time. And this swing didn’t just affect one specific portion of the utility sector. Everyone felt the decline caused by the novel coronavirus, and there aren’t many signs of it slowing down.
Why Are Utility Stocks Down Amid Coronavirus Fears?
Utility stocks are typically recognized as part of the defensive sector. When market volatility ramps up, as it has lately, the defensive sector tends to hold its ground.
This is why investors were so surprised by the plummeting numbers in renewable energy, electrical energy, natural gas and water stocks. For example, here are a few popular utility stocks that have taken some of the biggest hits so far:
- CenterPoint Energy (NYSE: CNP) fell 49.9% in just over a week.
- AES Corporation (NYSE: AES) fell 54.4% from its peak in February to the first week of March.
- American Water Works (NYSE: AWK) was trading at $138.50 on March 17. Three days later, it was down to $97.07.
- NRG Energy (NYSE: NRG) dropped as low as $19.54 a share in mid-March.
- Southern Company (NYSE: SO) fell nearly 30% in six days’ time.
Why are utility stocks down right now? For starters, the market volatility is forcing investors’ hand. Everyone is waiting for the market to bottom out before positioning themselves in anything. This includes utilities, no matter how safe these stocks traditionally are.
However, it isn’t all bad news. These stocks will bottom out like practically everything else. But they more than likely will recover quickly. We are already seeing signs of an upcoming surge as the coronavirus fears begin to settle down.
NRG Energy grew 24.9% in April after a horrific March, and its Q1 earnings results are on the way. Both AES and Southern Company had steady months as well. While the roller coaster is still in motion, it looks as if we’re nearing the end of the ride.
Are Utility Stocks a Good Investment?
Utilities have always been safe stocks in a traditional market. However, this market isn’t anywhere close to normal.
The current uncertainty is the biggest factor to consider. The market might quickly respond once shelter-in-place orders are removed and the economy is jump-started.
The problem is predicting when this will happen. Some states are beginning the process of reopening, while others are reaching peak numbers in coronavirus cases.
So why are utility stocks down? Without a concrete timeline for reopening the country, the market will continue to be as volatile as ever. Utility stocks aren’t immune to this volatility, as the past few months have shown. But these companies are well-prepared to handle the impact of the pandemic.
Utility Stocks Are Down, but Never Out
Forecasting the market is difficult when the world is running as normal. Therefore, it’s nearly impossible to predict when the stock market will stabilize in times like these.
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Why are utility stocks down? Market uncertainty is the answer, but this presents an unusual buying opportunity for investors.
About Corey Mann
Corey Mann is the Content Manager of Investment U. He has more than 10 years of experience as a journalist and content creator. Since 2012, Corey’s work has been featured in major publications such as The Virginian-Pilot, The Washington Post, CNN, MSNBC and more. When Corey isn’t focusing on Investment U, he enjoys traveling with his wife, going to Yankees games and spending time with his family.