The S&P 500’s utility sector on Thursday was on track to log its worst daily drop in about seven weeks, according to FactSet data. Utilities were down 1.7%, which would be its largest daily drop since May 18. All of the S&P 500’s utility shares were in negative territory, led by a 2% drop in Ameren Corp. . The decline for the sector comes as stocks were attempting a second day of gains ahead of a key report on the labor market due Friday. Investors have been driven to companies that generate electricity over the past year and that appetite has intensified as investors hunt for yield in an environment in which many government bonds are bearing ultralow or negative yields. Buyers in utilities covet the sector for its relatively high dividends. On Wednesday, for example, the U.S. benchmark 10-year Treasury note fell to a record low of 1.367%. The U.K.’s vote on June 23 to leave the European Union, dubbed Brexit, boosted demand for yield and assets perceived as low risk. So far in 2016, utilities have risen 20%, making the sector the second-best performer among the S&P 500’s 10 sectors. Telecommunications, another dividend-paying group, is up 21% year to date. Telecom also was trading lower Thursday, off 1.2%. A recent frenzy for these sectors due to their attractive dividends has raised concerns about bubbles, or market distortions being fostered by historically low yields. Indications that the Federal Reserve may keep rates lower for longer has been supportive to so-defensive sectors like utilities and telecom, but a jolt higher in rates could hurt those who have recently invested in those stocks.
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