The Commodity Rally Has Investors Ditching Their Safe Stocks

  • This week's commodity gain signals economic optimism: analysts
  • Utilities face headwinds before their earnings season starts

What’s good for commodities is proving bad for America’s utility stocks.

On Thursday, the S&P 500 Utilities Index capped the biggest two-day slide since August, with NiSource Inc., American Water Works Co. Inc. and Consolidated Edison Inc. leading the declines. On top of higher U.S. treasury yields making utilities less attractive, this week’s commodities rally has investors selling off the safe stocks to make riskier bets, analysts say.

The climb in commodities signals an optimism in the market about economic conditions improving. That’s bad news for safe-haven stocks like those in the Dow Jones Utility Average, which has fallen since hitting the highest level since at least 1929 on April 1. Utilities are poised to post lower first-quarter earnings as warmer weather crimped energy demand for heating, according to analyst forecasts compiled by Bloomberg.

The Bloomberg Commodity Index, which includes gold, crude oil, natural gas and corn, has jumped about 4 percent this week, reaching on Wednesday the highest level since November. Investors pulled about $202 million from exchange-traded funds focused on utilities on Wednesday and poured $186 million into ETFs holding energy stocks that rise with the price of oil, according to data compiled by Bloomberg.

“Clearly, commodities are looking better than utilities to some investors,” Kit Konolige, a Bloomberg Intelligence utilities analyst, said by phone. “That reflects a feeling that the global economic outlook is more positive than maybe people thought even a month or two ago.”

The Dow Jones Utility Average fell below its 50-day moving average Thursday, a bad technical sign, Greg Phelps, who manages about $50 billion including utility stocks for Manulife Asset Management LLC, said by phone.

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