The prospect of a rate cut by 2025 would further bolster the appeal of other sectors, with their stocks offering a solid alternative for those seeking stability and protection against inflation.
Savita Subramaniana prominent strategist in Bank of America (BofA) He argued that increasing volatility in the short, medium and long term will make stocks of utilities and other companies with stable earnings and high quality more attractive compared to the big tech companies that have dominated the market in recent years.
In a note to clients, Subramanian raised his recommendation for the utilities sector to “overweight” from “neutral.” He also said: He noted that the Federal Reserve’s (Fed) interest rate reduction policy will be a key factor in driving better returns in this sector.
“It’s better to take the tortoise (quality and stable earnings) than the hare (growth and rapid appreciation),” Subramanian said. He also noted that over the long term, utility stocks have shown similar returns to the Nasdaq 100, suggesting the gap of recent years may begin to close.
Wall Street after rate cut
To date, in 2024, the index S&P 500 Utilities The Nasdaq 100 is up nearly 21%, while the Nasdaq 100 is up about 12%. Over the past 12 months, returns were 21% and 20%, respectively, with utilities the best performer among the 11 major market sectors.
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The S&P 500 Utilities Index includes companies such as NextEra Energy, Southern Company, Duke Energy, American Electric Power, Constellation Energy, Sempra Energy, Dominion Energy and Pacific Gas & Electric, among others. Subramanian also noted that the potential reduction in rates, currently in the range of 5.25% to 5.50%, would make the shares of these utilities even more attractive.
Bank of America’s forecast places Interest rates at 3.25% by 2025which Subramanian said would create a favorable environment for dividend yields in this sector, in addition to the real estate sector, due to its inherent ability to protect against inflation.
Source: Ambito
