This high-yielding sector is a safe haven no more: Traders

Utilities stocks are safe havens no more and investors should be looking elsewhere for yield, according to some traders.

The utilities-tracking ETF (XLU) was down for an eighth-straight session Monday, when it tumbled more than 1 percent in morning trading. This fall is in sharp contrast to the first half of the year, when the XLU surged more than 22 percent heading into July.

The XLU's decline over the summer has led Erin Gibbs, equity chief investment officer at S&P Global, to caution investors that now is not the time to buy utilities stocks.

"We're getting used to lower interest rates, and we definitely see an investor behavior of more of a risk-on behavior going to more cyclical stocks," Gibbs said Friday on CNBC's "Trading Nation." "I think the utilities are ripe for a pullback. Not only are their valuations very close to what the S&P already offers, they're pretty much all close to their target prices on the underlying stocks."

In fact, the XLU has dropped 9 percent since the beginning of July, to its lowest in just over four months. The fall, according to Phillip Streible, senior market strategist at RJO Futures, can be attributed to what's going on with the XLU's two biggest components: electricity and natural gas stocks.

According to Streible, electricity has recently been hit with more regulatory costs while natural gas rig counts have picked up as of late. Both could end up weighing even more on the utilities sector, especially ahead of a potential Federal Reserve rate hike in December.

"A lot of people are playing [utilities] because they're not getting interest rate return anywhere else, that's why they're investing in it for that dividend yield," Streible said Friday on "Trading Nation." "As the Fed raises rates here, you may see a shift out of it."

The XLU is currently still up more than 11 percent year to date, even though the ETF has hit its lowest level since the end of May.


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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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