Dividend Stocks Doing Fine But Utilities Looking Dim

On Friday, December 6, stocks cheered the strong November jobs report and the major equity indexes rallied to new highs, but then hit a four-day skid going into last Friday. A strong catalyst for the profit taking: the two-day Federal Open Market Committee policy meeting on Tuesday and Wednesday. The fear is that the raft of upbeat economic data will prompt the Fed to slow its current pace of $85 billion in monthly purchases of long-term U.S. Treasury bonds and agency-backed mortgage securities, putting upward pressure on interest rates, which have already moved sharply in the past 17 months.

Performance of ETFs representing different segments of the stock market since interest took flight in early May. Note that DJ Select Dividend (DVY) has lagged the SPDR S&P 500 (SPY). That’s because you’ll find a lot of utility stocks in the DVY. Utilities—tracked by the XLU—tend to get treated like bonds because they usually offer income with a miniscule growth component. For REITs, it’s been ugly. The Cohen & Steers Realty Majors (ICF) is down 14% and the mortgage REITs in the REM have been hammered nearly 20% lower as rates have moved higher.

Source: Forbes

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