Top Stories
Top Stories
Markets

Plunging bond yields have lifted these two stock sectors to record levels

Key Points
  • The real estate and utilities sectors hit record levels on Tuesday thanks to the current low interest rate environment.
  • Investors pile into these sectors in times of uncertainty because of their higher dividends and steady cash flows.
  • Warehouse specific real estate companies are also strong performers this year thanks to the e-commerce boom.
Utilities workers helping restore power near Mobile, Alabama.
Getty Images

The real estate and utilities sectors hit all-time highs on Tuesday as investors search for yield in this low interest rate environment.

The S&P 500 Real Estate sector closed at $245.60 and the S&P 500 Utilities sector closed at $321.52, both finishing the day at all-time record highs. 

The real estate sector overtook the technology sector as the best performing sector so far this year. The S&P 500 Real Estate sector is up 27.68% this year and the S&P Technology sector is up 26.40% since January. 

Uncertainty fueled by the U.S.-China trade war and global growth slowing has caused interest rates to tumble. The yield on the 10-year Treasury note fell to its lowest level in three years on Tuesday after a report on the U.S. manufacturing sector showed the industry contracted in August.

The collapse in bond yields has set the stage for the standout performances of the real estate and utilities sectors due to their high dividend payment to shareholders. Investors pile into utilities and real estate in times of uncertainty because of their higher dividends and steady cash flow.

Utilities are generally more stable stocks, as demand for electricity and gas is a steady consumer and business need.

When yields drop, mortgage rates also go down and that means more people will buy real estate or refinance their mortgages. Affordability of real estate boosts activity in the market and lifts real estate stocks.

Warehouse specific real estate companies are also strong performers this year thanks to the e-commerce boom, which is also lifting the real estate sector. Prologis is up more than 44% and Rexford Industrial has risen more than 50% since the start of the year.