Are not utilities a bit of a bond proxy? With a potential sticky inflation issue and hawkish Fed, is it really the time to go long XLU? Is your argument mostly based on outperformance vs SPY? If you look at a long term chart of XLU-SPY, you certainly have to get your timing right and not overstay your welcome.
thx for question. really wish i could reply w/ charts in reply comments (you listening substack?). a couple of points:
overall, i'd rather be long XLU than be long duration
Utilities already significantly underperformed the level of rates. for context, XLU/SPX ratio would suggest US 10yr yield ~40bps above 200d avg or 1.8%. if we move to 1.8%, i think could weigh on rest of market more than utes.
similar, but more extreme message comes from Utilities relative valuation vs. 10yr yields and would indicate much higher yields
in this case, i'm thinking of Utilities as an absolute trade given oversold, 200d average support, positive seasonals (for utes and market overall), low correlation vs. SPX, and fits w/ broad view cyclical growth momentum is softening.
fully agree on timing and not overstaying. see it as a trade and area of market that can work if growth concerns accelerate, but can also work on its own given oversold conditions.
if you prefer, w/ XLU at 64.77 something like Dec XLU 1x2 67/70 call spread lines up nicely. pay ~55c for max payout of $2.44c at 70 (previous high). or increase payout profile (pay 27c/max payout of $1.73) by selling 69 strike depending on your view/confidence in upside.
Are not utilities a bit of a bond proxy? With a potential sticky inflation issue and hawkish Fed, is it really the time to go long XLU? Is your argument mostly based on outperformance vs SPY? If you look at a long term chart of XLU-SPY, you certainly have to get your timing right and not overstay your welcome.
thx for question. really wish i could reply w/ charts in reply comments (you listening substack?). a couple of points:
overall, i'd rather be long XLU than be long duration
Utilities already significantly underperformed the level of rates. for context, XLU/SPX ratio would suggest US 10yr yield ~40bps above 200d avg or 1.8%. if we move to 1.8%, i think could weigh on rest of market more than utes.
similar, but more extreme message comes from Utilities relative valuation vs. 10yr yields and would indicate much higher yields
in this case, i'm thinking of Utilities as an absolute trade given oversold, 200d average support, positive seasonals (for utes and market overall), low correlation vs. SPX, and fits w/ broad view cyclical growth momentum is softening.
fully agree on timing and not overstaying. see it as a trade and area of market that can work if growth concerns accelerate, but can also work on its own given oversold conditions.
if you prefer, w/ XLU at 64.77 something like Dec XLU 1x2 67/70 call spread lines up nicely. pay ~55c for max payout of $2.44c at 70 (previous high). or increase payout profile (pay 27c/max payout of $1.73) by selling 69 strike depending on your view/confidence in upside.
Cool. Thanks for the reply and the content in general.