You Won’t Guess Which ETF Just Hit an All-Time High

If I asked you to venture a guess at which S&P sector exchange-traded fund (ETF) just hit an all-time high, you might say something like the Technology Select Sector SPDR (XLK) or the Consumer Discretionary Sector SPDR (XLY).

Those would be good guesses, and each does trade close to its respective all-time highs. But on Tuesday, the S&P sector that hit an all-time high was… utilities.

If you didn’t guess right, don’t worry. Even I didn’t get the right answer when a colleague asked me that question, and I monitor the markets the way a fortuneteller with Obsessive-Compulsive Disorder (OCD) reads tea leaves.

That’s right, the Utilities Select Sector SPDR (XLU) just vaulted to a record high as part of its near-11% surge through the first five months of the year. That performance trounces that of the overall S&P 500, which has put in a very respectable 7.79% year-to-date win.

The reason why I, and likely most readers, failed to guess utilities as the sector making new highs is because this sector is the ultimate in defensive stocks.

This is the sector you go to when you’re worried about the future of the stocks, and when you think a more safety-oriented approach to the market is warranted. It is not a sector that you would think would be fueling the recent rise to all-time highs in the S&P 500.

Yet that’s what has happened this year, and investors are rightly asking why.

To dig a bit deeper for an answer, I consulted my go-to market watcher, Tom Essaye of the Sevens Report.

Tom explained to me that while it may surprise some that defensive sectors such as utilities are outperforming this year, when you think it through, it actually makes perfect sense.

According to Tom, there are four reasons why the smart money is embracing safety.

“First, economic growth has not been good in 2017. Most people haven’t noticed because stocks keep hitting new highs, but our economy appears to be losing momentum. Second, geopolitical tensions have risen (i.e. North Korea). Third, Washington is an utter mess. There’s been no progress on tax cuts or pro-growth policies. Finally, the 10-year bond yield has reflected all these different factors, and recently hit the lowest level since October,” explained Tom.

So, here we see that the penchant by investors for utilities is just a logical reflection of the very real problems brewing in this market… problems that could threaten to bring this bull market to a halt.

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