The Dow Jones Utilities Index is a collection of utility stocks. Most of the Dow Jones Utilities Index is built on electricity generation, as that is a key part of a modern economy. Many investors in stocks contained within the Dow Jones Utilities Index are looking to obtain a dividend yield, since most of the firms are not fast-growing firms.
“When in doubt, look at the charts.”
The above has been my motto for years. I believe that stocks and the stock market are leading indicators. They tell us what is going to happen with specific industries, various prices and the economy six to 12 months out.
One chart I have been studying closely this year is the Dow Jones Utilities Index. Utility stocks traditionally rise when interest rates fall and investors can get better yields off of secure utility stocks than they can get from CDs or T-bills. Similarly, when interest rates rise, utility stocks fall, as investors flee them to the rising yields of CDs, T-bills and bonds.
What’s with utility stocks and why should investors care?
Watching the price action of the utility stocks is very important to investors, as the utility stocks are leading indicators of interest rates. By watching the price action of these stocks, we can relate their price direction to where we expect interest rates to go.
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