A surge in Treasury yields has sent shockwaves through the U.S. equity market this Friday, leading to a 4% drop in the S&P 500. This sharp downturn follows the Federal Reserve's hawkish interest rate projections. Investors have shifted their focus to higher-yielding government debt, heavily impacting "bond proxy" sectors such as utilities and consumer staples.
NextEra Energy (NYSE:NEE), the leading company by market value in the S&P 500 utilities sector, experienced a significant 27% plunge in share value after downgrading its growth outlook. The sector as a whole saw an alarming 13% drop. The Philadelphia SE Utilities index now indicates the group's lowest relative valuation to the S&P 500 since 2010.
VandaTrack reported significant retail investor activity, with a $32 million inflow into utility shares over the past five days. Despite this influx of investment, telecom giants AT&T (NYSE:T) and Verizon (NYSE:VZ) also suffered losses.
LSEG IBES data reveals a mixed picture of the utility sector's future. Despite projecting stronger growth for the sector compared to the overall S&P 500 in upcoming quarters, it lags behind in anticipated increase. BCA Research suggests that these events mark a significant shift in the interest rate regime.
The current market dynamics underline the sensitivity of equity markets to changes in interest rates and Treasury yields. As investors recalibrate their portfolios in response to these shifts, sectors traditionally seen as bond proxies could face further pressure.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.