The steadfast utilities sector has emerged as the unlikely frontrunner within the S&P 500 in 2024.
As of September 11, the Utilities Select Sector SPDR Fund XLU has defied expectations with a 22% surge year-to-date, outpacing all other sectors and even eclipsing the technology sector – represented by the Technology Select Sector SPDR Fund XLK – by a remarkable 9 percentage points.
This shift marks a notable reversal for utilities, which lagged behind tech by a substantial 40 percentage points in the previous year of 2023.
Charting Success: Utilities Sector Leads S&P 500 and Tech Stocks in 2024
Unveiling the Driving Forces Behind the Utility Sector’s Surge
The surprising success of utilities stocks in 2024 has taken many by storm, particularly amidst the market’s focus on growth-oriented sectors like technology in recent times.
Analyst Michael Gayed remarked on this phenomenon, noting a defensive undertone in the performance of stocks like utilities and consumer staples leading the charge, potentially signaling a shift in market sentiment.
This shift towards defensive assets gains particular relevance against a backdrop of escalating concerns regarding macroeconomic instability and a tumultuous interest rate environment.
Bank of America’s upward revision of the utilities sector to an Overweight rating points to a blend of income and quality characteristics that have become increasingly appealing amidst heightened market volatility.
Despite initial lackluster investor interest, individual utility stocks have begun witnessing inflows in recent weeks, while ETF flows have displayed an upward trajectory since spring, as highlighted by Bank of America analysts.
Macro strategist Otavio Costa of Crescat Capital marveled at the dominance of the most defensive sector within the S&P 500, despite widespread consensus on a flourishing economy.
Utilities Prepare to Meet the Surging AI-Driven Data Center Demand
A pivotal driver for the utilities sector’s ascent is the escalating demand for electricity associated with the proliferation of AI-linked data centers.
Goldman Sachs analyst Carly Davenport shed light on this trend, stating, “Data center growth is increasingly influencing power demand, with optimistic revisions to the pipeline.”
Goldman Sachs projects that data centers will emerge as the primary catalyst of U.S. power demand growth, contributing approximately 90 basis points (bps) to the nation’s 2.4% power demand compound annual growth rate through 2030.
This surge in demand is anticipated to spur additional capital investments in both transmission and generation capacity, potentially fueling further upside for utility stocks in the coming years.
Standout Utility Stocks of 2024
Several utility companies have witnessed exceptional growth this year, powered by robust earnings, strategic investments, and favorable industry tailwinds. Here’s a snapshot of the top-performing utility stocks year-to-date through September 11:
| Name | Price Change % (YTD) |
| Vistra Corp. VST | 107.95% |
| Constellation Energy Corporation CEG | 60.22% |
| NRG Energy, Inc. NRG | 54.88% |
| NextEra Energy, Inc. NEE | 37.39% |
| Public Service Enterprise Group Inc. PEG | 34.52% |
| American Electric Power Company, Inc. AEP | 26.86% |
| The Southern Company SO | 26.63% |
Read Next:
Photo: Shutterstock