Soaring Treasury yields have stunned the US equity market in recent weeks, with some of the heaviest fallout hitting a group of stocks expected to have bond-like qualities.
The S&P 500 is down about 4 per cent since the Federal Reserve's hawkish interest rate projections last month sent US yields to 16-year peaks and accelerated an equities pullback from highs reached in late July.
While rising yields are generally regarded as unfavourable to growth stocks, some of the steepest losses have been concentrated in more staid sectors such as utilities and consumer staples.
Such areas are often referred to as “bond proxies” for their strong, stable dividends, which over the past decade have usually exceeded Treasury yields. Those hefty payouts, as well as businesses perceived to be more durable during a rocky economy, led many investors to view them as a safe harbour when markets became turbulent.
But surging bond yields have dulled the appeal of bond proxies. Investors can now earn higher yields on government debt seen as virtually risk free if held to term. The yield on a six-month Treasury now stands at around 5.6 per cent, while the utilities sector was yielding 4 per cent and staples yielded 3 per cent, according to LSEG data.
As a result, shares of bond proxies have taken an outsize hit in recent weeks. The S&P 500 utilities sector has tumbled 13 per cent since last month’s Fed meeting. Staples has dropped about 8 per cent in that time, with investors also assessing the impact on consumer companies from a new class of weight-loss drugs.
Other areas known for their dividend appeal have also suffered, with real estate off 8 per cent since the Fed's meeting, and telecom stocks AT&T and Verizon dropping 7 per cent and 8 per cent, respectively.
Investors have scrambled to recalibrate their portfolios following the Fed's outlook suggesting rates will stay higher for longer, which has also strengthened the dollar and sent gold sliding.
The underperformance of bond proxies shows “the market is finally buying that we are in a completely different interest rate regime,” said Irene Tunkel, chief US equity strategist at BCA Research.
Bond proxies were underperforming after Friday's US employment report showed jobs growth surging above expectations and the yield on the benchmark 10-year Treasury shot up over 4.8 per cent. Next Thursday's consumer price index report will be critical for investors assessing whether the Fed will seek to raise rates further to fight inflation.
Next week also kicks off third-quarter earnings results for US companies, with several major banks reporting. The earnings season could determine the near-term path for stocks, with the S&P 500 still logging a 10 per cent gain for the year even after its pullback.
The utilities sector's steep slide has put the group in particular investor focus. Problems have been compounded by the share plunge for the sector's biggest company by market value, Nextera Energy. Nextera shares have tumbled 27 per cent since the end of last month, when a subsidiary, Nextera Energy Partners, cut its growth outlook.
Earnings may not provide much relief for utilities. While the sector is expected to see stronger growth than the overall S&P 500 in the third and fourth quarters, its projected 8.6 per cent increase in 2024 lags the expected 12 per cent rise for the overall S&P 500, according to LSEG.
Weakness in utilities shares spells opportunity for some investors. The Philadelphia SE Utilities index indicates the group trading at its lowest relative valuation to the S&P 500 since 2010, excluding the initial coronavirus period in 2020, analysts at KeyBanc Capital Markets said in a note this week, adding “we now view the sector overall as attractively valued”.
Retail investors poured $32 million into utilities shares, far more than any other prior five-day stretch, according to weekly data from VandaTrack, which follows retail activity.
Whether the stocks are worth scooping up could depend on an investor's outlook for interest rates, said James Ragan, director of wealth management research at DA Davidson.
“If you think that the 10-year yield is going to go to 5 per cent and keep running a bit, then I don’t think the utilities are going to do very well,” he said.
The smuggler
Eldarir had arrived at JFK in January 2020 with three suitcases, containing goods he valued at $300, when he was directed to a search area.
Officers found 41 gold artefacts among the bags, including amulets from a funerary set which prepared the deceased for the afterlife.
Also found was a cartouche of a Ptolemaic king on a relief that was originally part of a royal building or temple.
The largest single group of items found in Eldarir’s cases were 400 shabtis, or figurines.
Khouli conviction
Khouli smuggled items into the US by making false declarations to customs about the country of origin and value of the items.
According to Immigration and Customs Enforcement, he provided “false provenances which stated that [two] Egyptian antiquities were part of a collection assembled by Khouli's father in Israel in the 1960s” when in fact “Khouli acquired the Egyptian antiquities from other dealers”.
He was sentenced to one year of probation, six months of home confinement and 200 hours of community service in 2012 after admitting buying and smuggling Egyptian antiquities, including coffins, funerary boats and limestone figures.
For sale
A number of other items said to come from the collection of Ezeldeen Taha Eldarir are currently or recently for sale.
Their provenance is described in near identical terms as the British Museum shabti: bought from Salahaddin Sirmali, "authenticated and appraised" by Hossen Rashed, then imported to the US in 1948.
- An Egyptian Mummy mask dating from 700BC-30BC, is on offer for £11,807 ($15,275) online by a seller in Mexico
- A coffin lid dating back to 664BC-332BC was offered for sale by a Colorado-based art dealer, with a starting price of $65,000
- A shabti that was on sale through a Chicago-based coin dealer, dating from 1567BC-1085BC, is up for $1,950
Tips to stay safe during hot weather
- Stay hydrated: Drink plenty of fluids, especially water. Avoid alcohol and caffeine, which can increase dehydration.
- Seek cool environments: Use air conditioning, fans, or visit community spaces with climate control.
- Limit outdoor activities: Avoid strenuous activity during peak heat. If outside, seek shade and wear a wide-brimmed hat.
- Dress appropriately: Wear lightweight, loose and light-coloured clothing to facilitate heat loss.
- Check on vulnerable people: Regularly check in on elderly neighbours, young children and those with health conditions.
- Home adaptations: Use blinds or curtains to block sunlight, avoid using ovens or stoves, and ventilate living spaces during cooler hours.
- Recognise heat illness: Learn the signs of heat exhaustion and heat stroke (dizziness, confusion, rapid pulse, nausea), and seek medical attention if symptoms occur.
Ferrari 12Cilindri specs
Engine: naturally aspirated 6.5-liter V12
Power: 819hp
Torque: 678Nm at 7,250rpm
Price: From Dh1,700,000
Available: Now
Tank warfare
Lt Gen Erik Petersen, deputy chief of programs, US Army, has argued it took a “three decade holiday” on modernising tanks.
“There clearly remains a significant armoured heavy ground manoeuvre threat in this world and maintaining a world class armoured force is absolutely vital,” the general said in London last week.
“We are developing next generation capabilities to compete with and deter adversaries to prevent opportunism or miscalculation, and, if necessary, defeat any foe decisively.”
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In numbers: China in Dubai
The number of Chinese people living in Dubai: An estimated 200,000
Number of Chinese people in International City: Almost 50,000
Daily visitors to Dragon Mart in 2018/19: 120,000
Daily visitors to Dragon Mart in 2010: 20,000
Percentage increase in visitors in eight years: 500 per cent
The specs
Engine: 4-litre twin-turbo V8
Transmission: nine-speed
Power: 542bhp
Torque: 700Nm
Price: Dh848,000
On sale: now
Opening day UAE Premiership fixtures, Friday, September 22:
- Dubai Sports City Eagles v Dubai Exiles
- Dubai Hurricanes v Abu Dhabi Saracens
- Jebel Ali Dragons v Abu Dhabi Harlequins
Profile
Company: Justmop.com
Date started: December 2015
Founders: Kerem Kuyucu and Cagatay Ozcan
Sector: Technology and home services
Based: Jumeirah Lake Towers, Dubai
Size: 55 employees and 100,000 cleaning requests a month
Funding: The company’s investors include Collective Spark, Faith Capital Holding, Oak Capital, VentureFriends, and 500 Startups.
How to help
Call the hotline on 0502955999 or send "thenational" to the following numbers:
2289 - Dh10
2252 - Dh50
6025 - Dh20
6027 - Dh100
6026 - Dh200
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The specs
- Engine: 3.9-litre twin-turbo V8
- Power: 640hp
- Torque: 760nm
- On sale: 2026
- Price: Not announced yet
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'Operation Mincemeat'
Director: John Madden
Cast: Colin Firth, Matthew Macfayden, Kelly Macdonald and Penelope Wilton
Rating: 4/5
Global state-owned investor ranking by size
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