Boring is beautiful this year, as the utilities sector surges skyward

Utilities stocks have surged so far this year, and some market analysts think the best may still be ahead.

The S&P 500 utilities sector is up 21 percent in 2016, making utilities the best-performing sector as it outperforms the broader S&P by nearly 20 percent. What's most impressive, according to Strategas Research Partners technical analyst Chris Verrone, is how broad the rally in these electricity, gas and water providers has been.

"Last week we had 82 percent of the sector make a 52-week high. Expansions and new highs are bullish, not bearish. We would welcome any pause. We think a pullback is a buying opportunity in these stocks," Verrone said Tuesday on CNBC's "Trading Nation."

Utilities' hot streak can mostly be pinned on ever-falling interest rates.

The US 10-year Treasury yield closed at an all-time low of 1.375 percent on Tuesday, and the 30-year yield hit a fresh record low of 2.098 percent on Wednesday morning. Uncertainty following the UK's decision to leave the European Union may be one factor driving bond yields lower, but stimulative central bank policies amid stagnant global growth and moribund inflation are the primary catalyst for ultra-low rates.

With the utilities-sector-tracking ETF (XLU) yielding nearly 4 percent even after this year's great run, these stocks are primary hunting ground for yield seekers.

"This is about yields, so long as the trend in yields is down, I don't think the valuation matters here too much," Verrone said.

But Eddy Elfenbein, editor of the Crossing Wall Street blog, disagrees. He said valuations have become too stretched, and that changing expectations of a rate hike from the Fed is a one-time thing.

"That's not a repeatable event. Once it's happened, it's happened," Elfenbein said on "Trading Nation." "That's why I think this is a good opportunity for utility investors to take some profits and go someplace else with their money."

Friday on "Trading Nation," Wharton professor Jeremy Siegel said that "there's really no hope for yield in the fixed-income market," which is a reason he sees more and more investors moving into high-yielding stocks.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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