The S&P 500 Utilities sector led the pack in 2014, posting a gain of over 25%. The interesting takeaway from this year’s strong sector out-performance is the relative breakout in the charts. The Utilities sector relative to the S&P 500 has broken above a mulit-year downtrend of under-performance.
As we look historically at the Utilities/S&P 500 ratio, we saw a bottom form in the ratio in 1999-2000, soon followed by a crash in the S&P 500 from all-time highs. We are witnessing a similar setup recently, as the S&P is near all-time highs and the Utes/SP 500 ratio appears to be bottoming out. I wish it was so simple but the inverse relationship wasn’t so inverse between 2001-2008, where the ratio and S&P index actually moved in tandem.
With bond yields continuing to remain depressed; it will be interesting to see if Utilities can continue to piggy back on their 2014 strength and provide any indication of risk appetite.