The market has been volatile over the last three months especially when the S&P 500 finished 2018 approximately 20 percent lower from its record high in September. The bearish sequence that started in early October sent the volatility index (VIX) into panic territory, meaning above 22.75 points, after months into soft territory, meaning below 15.95 points.
Since then, the S&P 500 has recovered about half of its loss as it stands 11.89 percent below its latest record high, the same elsewhere with minus 10.69 percent for the DJIA and almost minus 20 percent for its German counterpart the DAX 30.
Besides, Switzerland-based and world’s largest wealth manager UBS believes investors should keep their money in the stock market. “You have to stay invested, whatever your risk tolerance can bear,” Mark Haefele, global chief investment officer at UBS Global Wealth Management, told clients at the UBS Wealth Insights forum in Singapore.
In the meantime, an anonymous trader sold 19,000 put options on the S&P 500 index at strike price 2,100 and at expiration date December 18, 2020, whether it is a bullish bet or some hedging for some previous existing investing is not known however.
In 2000, Berkshire Hathaway (BRK) entered into a new industry when it invested $1.7 billion to acquire MidAmerican Energy (MEC), an electric utility based in Iowa with operations in the United States and the United Kingdom. “Though there are many regulatory constraints in the utility industry, it’s possible that we will make additional commitments in the field. If we do, the amounts involved could be large,” said at the time BRK’s CEO and Omaha-based legendary investor Warren Buffett.
Mostly considered a low risk investment though capital-intensive, the utility sector encompasses stocks from electric, water, gas and power providers. Despite some continuous uncertainty over the cost of infrastructure and raw materials, utility stocks are widely seen as reliable as bonds but more rewarding since they pay a dividend yield of 3.5 percent, clearly above the yield of the S&P 500 at 2.11 percent and the U.S. 10-year Treasury note at 2.7 percent as of December 28, 2018.
Since the market’s recent entry into bear territory, consulting firm Cyceon noticed that the utility sector has shown more resilience so far than most other sectors including health care, financials and industrials.
Indeed, utility companies like Connecticut Water Service (CTWS), Atmos Energy (ATO), Northwest Natural Gas (NWN) are respectively down 4.05 percent, 7.46 percent and 12.86 percent from their historical highs*. In the meantime, industrial company ABM Industries Inc. (ABM), financial company Eaton Vance Corp. (EV) and health care distributor Cardinal Health (CAH) are respectively down 30.92 percent, 40.38 percent and 50.65 percent from their historical highs.
Multi-utilities companies however might be a bit more scattered than their specialized counterparts, for instance MDU Resources (MDU) is 34.20 percent away from its top, contrasting with Vectren Corp. (VVC) which is just 0.18% away. All the companies cited above belong either to the dividend aristocrats category or to the dividend champions category meaning that they are all longstanding companies with stable dividend distribution and growth policy.
* Most of historical highs here have been considered since 2007.
The question of whether we are about to experience a stock market crash is on everyone’s lips. In the United States, the Dow Jones Industrial Average (DJIA) has lost 7 percent in less than a month and is dangerously close to a correction.
In Europe, the German DAX index lost 9 percent and its French counterpart the CAC index lost 10 percent indicating that the continent is already in corrective territory. In Asia, the Hong Kong HSI index showed a significant downward trend as of September 10, and the Shanghai SSE index yet dropped a bit less by 6.7 percent over the same period, but fell sharply by 23.5 percent over the last twelve months.
Against the backdrop, several issues participate in this correction, something that analysts fear it could turn into a depression after nearly nine years of uninterrupted rise in developed markets.
First, Chinese growth is weakening, then, the euro area is experiencing tensions with the first ever rejection of the Italian budget by the European Commission, finally trade tensions are increasing since the election of Donald Trump at the White House.
However, the fundamental reason is twofold and comes from the United States with a US economy so attractive that it draws foreign capital to the detriment of other countries, especially emerging and emerged ones, and most importantly with the rate hikes unanimously envisaged by the US Federal Reserve (Fed)’s members according to the minutes of the latest FOMC.