Utilities (XLU) and Health Care (XLV) Sectors Rise Above Market Wreckage

Chart of Utilities (XLU) and Healthcare (XLV) Sectors vs S&P 500 (SPY)
Chart of Utilities (XLU) and Healthcare (XLV) Sectors vs S&P 500 (SPY) – Source: TradingView

For the past two-and-a-half months since early October, equity markets have been an absolute wreck. Market volatility has remained stubbornly elevated for an unusually long stretch of time. Investors nowadays are skittish and ready to run for the hills at the slightest hint of perceived trouble. And stocks have been quick to tumble on a day-to-day basis with little fundamental reason. But year to date, two sectors have outperformed others and the overall market – Utilities (represented by the XLU ETF) and Health Care (represented by the XLV ETF).

Utilities and Health Care Beat the Market

Both of these sectors have gained only slightly more than a relatively modest 7% since the beginning of January. However, these returns are far better than the S&P 500 (represented by the SPY ETF), which now has slightly negative performance (-2%) for the year given the recent market turbulence.

Safety in Utilities Sector

Keep in mind that utilities sector stocks are usually nothing to get very excited about. Typically, they’re actually rather boring. But this boring, reliable, staid quality is part of what makes them shine when conditions are rough elsewhere. Utilities tend to outperform other sectors during times of market uncertainty because of the stable dividends these companies generally pay. And since utility customers tend to pay their bills even during tough economic times, recession-resistant revenue for these companies is another plus.

Safety in Health Care Sector

As for health care, this sector tends to share some characteristics with utilities. Like utilities, the health care sector is also considered ‘defensive’ – the products and services are considered necessary for consumers. So, these stocks tend to be stable and outperform during economic contractions and market pullbacks. Also, health care stocks generally offer attractive dividend yields. Overall, demand for necessary health care products and services has continued to rise with the aging population. We discussed major booming healthcare stocks a few weeks ago.

The Takeaway

While we wouldn’t necessarily recommend rushing out to buy utilities and health care stocks/ETFs, they can be very useful in balancing a portfolio during rough markets. And right now, markets are certainly rough and are likely to stay that way for at least the near-term foreseeable future.

IMPORTANT: The information above should not be construed as investment advice and should not be considered as a solicitation to buy or sell securities. Trading and investing in the financial markets involves substantial risk of loss, and may not be suitable for all investors.

Disclosure: At the time of this article’s publication, we have no position in any security or trade/investment mentioned, nor do we have any business relationship with any company whose stock may be mentioned.

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