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Boring is beautiful

The flashiest, best performing sector this year is... utilities?

Utilities stocks are up 27% in 2024, even better than tech

9/17/24 8:48AM

The stock market story of the year has been all about artificial intelligence (or maybe the Fed, if you’re more of a “zoom out” person).

But, despite Nvidia’s inexorable rise and the ongoing dominance of the Magnificent 7, it’s good old fashioned utility stocks — think electricity, water, and gas companies — that are leading the market this year, up more than 27%. That’s better than the Information Technology (+26%) or Communication Services (+25%) sectors.

Utilities stocks outperforming — Sherwood News

So, why are utility stocks soaring?

We never know exactly why any stock is doing anything, but in this case the market seems to be seeking exposure to utilities for two reasons. Firstly, after years of tighter monetary policy, we’re close to getting a cut in interest rates, lowering the borrowing costs for utility companies, as well as making their high dividend yields relatively more attractive to income-seeking investors.

The second reason is more fundamental. Many utilities stocks are indirectly exposed to AI (and you thought this story was about something else), by powering the ever-growing demand for data centers.

In fact, the best performing stock in the Utilities sector of the S&P 500 is a little-known company called Vistra Corp., which only joined the index in May, and has soared more than 130% this year. The second-best performing is Constellation Energy Corp. (+71%), which is America’s largest owner and operator of nuclear power plants.

Unsurprisingly, the management of these companies are talking up the opportunity:

The simple fact is that data centers are coming and they're essential to America's national security and economic competitiveness. We've heard this from a variety of policymakers, a number of nations, including China, are vying for AI supremacy. And it's absolutely critical that the US not fall behind. Time is of the essence. We simply cannot wait years for the data centers that are going to bring transformations. They're going to bring transformations in medicines, bringing new cures to diseases and treatments that research alone cannot do.
Joseph Dominguez — Chief Executive Officer, Constellation Energy Corp [August 6th, 2024]

Altogether, the words “data center” were mentioned 35 times on Constellation Energy’s Q2 earnings call. The count for the same quarter last year? Zero mentions.

Matt Phillips57m

Arista Networks rips higher amid jump in call buying

Arista Networks, a maker of switches and other networking equipment used in AI data centers, was on track for its best day of the new year on Thursday as options traders went bullish on the stock.

As of around 11 a.m. ET, there was nearly twice as much call buying in Arista than its 10-day moving average for a full day of activity. Buying call options to make leveraged bets on price increases has been a favorite trading tactic of retail traders in recent years.

Otherwise, there weren’t clear headlines tied to today’s outsized move, but the stock has been getting attention lately: in a note published earlier this month, Goldman Sachs analysts spotlighted Arista as a top tactical trade for earnings season, saying the shares — which they rate a “buy” — could rise 20% over the next year.

“ANET is well positioned amidst ongoing data center spending growth, where its position as a best of breed provider of networking equipment should advantage the company, particularly as data center networks become increasingly complex,” Goldman analysts wrote in the January 8 report.

And recent reports also say Microsoft — which accounted for 20% of Arista’s revenue in 2024, according to Goldman Sachs — is planning a massive expansion of its Wisconsin data center project.

Arista stock did get a lift following the release of solid US economic numbers at 8:30 a.m. that seemed fairly specific to Arista itself. (There was no similar bounce from competitors like Cisco or Hewlett-Packard.)

Microsoft receives preliminary approval for $13.3B data center expansion in Mount Pleasant - Milwaukee Business Journal

And recent reports also say Microsoft — which accounted for 20% of Arista’s revenue in 2024, according to Goldman Sachs — is planning a massive expansion of its Wisconsin data center project.

Luke Kawa2h

Investors just made a mammoth $133 billion flip from cash to stocks, per Goldman Sachs

It’s a dash from cash, with investors taking billions in dry powder and pouring that money into the stock market.

“We saw strong net flows into global equity funds last week, led by stronger inflows into US and EM equity funds (+$71 billion vs $2 billion in the previous week) — more than 35x-ed the flows,” wrote Goldman Sachs’ Gail Hafif, Brian Garrett, and Lee Coppersmith. “While equity flows increase, money market fund assets fell by $62 billion. This is the 3rd largest level in our dataset (!).”

The trio is bullish on US stocks, seeing “the case for contained selloffs coupled with relief rallies as the most likely path forward in the near term.”

Luke Kawa

Retail traders’ monthly appetite for stocks ascends to fresh record

“The current ‘new year’ momentum has been sustained and has now pushed retail activity to an all-time high on a rolling monthly basis,” according to JPMorgan.

BRITAIN-LONDON-FIREWORKS-NEW YEAR-CELEBRATION

J. Edward Moreno2h

Moderna extends rally on positive cancer vaccine results

Moderna has more than doubled since it announced on Tuesday that its cancer vaccine reduced the risk of relapse or death for melanoma patients.

The five-year data from a Phase 2b trial showed that Moderna’s vaccine, when used with Merck’s blockbuster treatment Keytruda, reduced the risk of recurrence or death by 49% compared with Keytruda alone. The news gave investors hope that Moderna, which is best known for quickly developing a COVID-19 vaccine, may soon have another lucrative product in its portfolio.

Last week, Moderna said it expects to report total 2025 revenue of $1.9 billion, on the high end of its latest guidance of between $1.6 billion and $2 billion, amid better-than-expected vaccination rates. As demand for the COVID-19 vaccine, its sole revenue-generating product, has tanked, the company has aggressively cut costs and focused on expanding its portfolio.

The combination of positive announcements early in the year has made Moderna the second-best performer in the S&P 500 Index in 2026, behind newfound AI darling Sandisk.

Luke Kawa4h

POET Technologies tumbles after announcing $150 million direct share offering

POET Technologies is tumbling in early trading Thursday after the optical communications company announced that it’s raising $150 million through the sale of about 20.7 million shares in a registered direct offering.

It’s an opportunity for management to cash in on the stock’s more than 30% rally year to date (as of Wednesday’s close).

“With a substantial base of cash, we plan to accelerate our pursuit of targeted acquisitions, add to our capabilities and talent base, vertically integrate our products with differentiated components, and expand operations to pursue revenue opportunities across the board, in order to bring long-term value to shareholders,” Executive Chairman and CEO Dr. Suresh Venkatesan said.

POET’s last offering came in late October, after which shares nearly halved in less than a month amid a broad drawdown in speculative, volatile stocks beloved by retail traders.