It's been a tough couple of months for the market. The S&P 500 and have fallen a respective 8 and 9 percent since the start of June. But in a market full of losers, one defensive sector has emerged as the winner: Utilities.
Of the 10 S&P 500 sectors, Utilities is the only one in the green this quarter, up more than 1 percent as recent global stock market turmoil and uncertainty over the Fed has investors running for safety. The sector is now pacing to track its first winning quarter since the start of 2015, and according to one strategist, the longer the Fed holds off on raising interest rates, the more utilities will rally.
"When you look at Fed policy there's a global economic component, a global risk component and a U.S. economic component and the global risk in economics is driving the bus right now," Larry McDonald told CNBC's "Power Lunch" on Wednesday. "If you look over the past year, when the Fed has pushed out the Fed rate hikes utilities have done quite well."
For McDonald, as more economists write off the idea of a Fed hike this year, interest rate sensitive sectors like utilities should continue to outperform. "If you're dovish on the Fed you want to be in utilities," added the head of U.S. macro strategies group at Societe Generale.
Despite its recent strength, the utilities have been among the worst performers year to date, down 11 percent while the broader S&P 500 is down 6 percent over that period. Even as it has widely underperformed, technical analyst Todd Gordon said he expects to see more investors flock to the space.
"With every S&P sector below its 50-day moving average, if you must hideout somewhere the place to be is utilities," the CNBC Contributor and founder of TradingAnalysis.com said in a "Trading Nation" segment.
Looking at a chart of the utilities sector ETF, the , Gordon, who is bearish on the overall market, said that utilities' tight correlation with the 10-year treasury note futures could mean further gains in months to come. "The two have a 53 percent correlation and from a comparison intermarket perspective the XLU is undervalued and could continue to move higher," he added.
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