The underdog in the stock market arena, the utilities sector, has stealthily risen to the top of the S&P 500 leaderboard in 2024.
As of Sept. 11, the Utilities Select Sector SPDR Fund XLU has surged 22% year-to-date, outshining all other sectors and even overtaking the tech sector – represented by the Technology Select Sector SPDR Fund XLK – by a notable 9 percentage points.
This remarkable turnaround for utilities, lagging 40 percentage points behind tech in 2023, indicates a tectonic shift in market dynamics.
Charting the Ascendancy of Utilities Sector over S&P 500 and Tech Stocks in 2024
Exploring the Forces Behind the Surge in the Utility Sector
The surprising outperformance of utilities stocks in 2024 has left many investors scratching their heads, amid the recent focus on growth sectors, particularly technology.
Analyst Michael Gayed suggests, “There is a clear defensive undercurrent at play here, with defensive stocks like utilities and consumer staples taking the lead. The ebb in momentum of the once seemingly invincible ‘Magnificent 7’ tech stocks might signal a shift in market sentiment.”
This pivot towards defensive assets gains significance in the face of escalating macroeconomic uncertainties and a tumultuous interest rate environment.
Bank of America’s upgrade of the utilities sector to Overweight underscores the growing allure of income and quality attributes amidst the escalating volatility.
While investor sentiment has been lukewarm towards the sector, recent inflows into individual stocks and positive ETF trends since spring indicate a changing tide, as noted by Bank of America analysts.
“It’s awe-inspiring to witness the most defensive segment of the S&P 500 emerge as the year’s top performer, despite the prevailing narrative of a robust economy,” noted Otavio Costa, a macro strategist at Crescat Capital, in a social media post X.
Utilities Power the Surge in AI-Driven Data Centers
One pivotal force propelling the utilities sector is the escalating demand for electricity propelled by the expansion of AI-driven data centers.
In a research note, analyst Carly Davenport from Goldman Sachs highlighted this trend, stating, “The growth of data centers is significantly enhancing power demand, with further optimistic revisions to the forecast.”
Goldman Sachs predicts that data centers will be the primary driver of power demand growth in the U.S., 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 trigger increased capital investments in transmission and generation capacity, potentially fueling further upside for utilities stocks in the coming years.
Leading Utility Stocks Reign Supreme in 2024
Several utility companies have seen substantial gains this year, propelled by robust earnings, strategic ventures, and favorable sectoral trends. Here’s a rundown of the top-performing utility stocks year-to-date through Sept. 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% |
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