“The Power is back on!” – Utilities
By EidoSearch
Living in the Northeast and dealing with blizzards, ice storms and high winds, we are used to having the power knocked out. Calling the power company for a status update will give you a 2 day window at best on when they expect to have your grid back up. When the lights and every other plug-in finally does comes back on, everyone shouts in unison, “The Power is back on!”. Wouldn’t it be nice if the power company could give you a more precise estimate on when you can start watching the NFL playoff games again?
If you were an investor in the Dow Jones Utilities Index last year you might be able to relate. The Index started with a “jolt” in 2013, rising about 16% from $461 on January 2nd to $537 at the end of April. Then, the lights went out. The Index proceded to give back just about all those gains, dropping all the way back to $465 by June 20th. It’s been choppy ever since, and Utilities are down 5.3% since their recent high of $506 on November 18th. The biggest ongoing concern from this point seems to be the Fed tapering and the increase in short term rates for the borrowing intensive Utilities companies. On the positive side, the valuations are looking appealing compared to the broader market and the dividend yields for this group of stocks is terrific. So, when does the power come back on?
We decided to take a shorter term view to provide some immediate relief to everyone on hold with the Utilities companies. We looked at the last 3 month price trend in the DJ Utilities Index, and looked back 20 years in the Index’s history to find the most similar historical occurrences of this 3 month price pattern and to see what happened next. Investors reacted very consistently, and favorably. We found 11 highly correlated instances, and in 10 of the 11, the Utilities Index was up in the next one month and the average return of all 11 historical instances was 4.39%.
We think you should get ready to shout. Charts below:
3 month price trend for the Dow Jones Utilities Average
Chart of the 11 highest correlated historical instances of this 3 month pattern in the Dow Jones Utilities
Index, and the average return of those instances in the next 1 month of 4.39%
