Utilities as a rate-regime lead for equities

Utilities often turn before the broad equity index

Utility averages and a broad equity index generally trend in the same direction, yet utilities typically change direction first. That earlier turn is a utility-lead: a directional turn in a utility average that appears before the matching turn in a broad equity index, with a lead that may last days, weeks, or several months.

Observed utility lead times range from days or weeks at some 1987 and 1990 bottoms to several months at the 1990 peak and the mid-1991 trough. In 1990 the utility average peaked in January, six months before the broad equity peak in July. In 1987 the utility average peaked in January, seven months before the August equity top.

Filter mixed averages for interest-rate sensitivity

A 15-stock utility average can be distorted by three natural-gas names that respond more to gas prices than to interest rates. In summer 1991 a sharp drop in one natural-gas stock pushed the mixed utility average to a new yearly low, while electric utilities showed a milder correction.

An electric-utility-filter prefers an electric-utility index over a mixed utility average so the reading stays tied to interest-rate expectations rather than natural-gas prices.

Electric utilities still led, with uneven timing

Electric utilities showed short lead times at the late-1990 bottom and the early-1992 top, and a longer lead at the mid-1991 trough. Electric utilities peaked a week before equities in January 1992 and turned up in March 1992, a month before the broad equity index.

Ask industrials, transports, and utilities to agree

Dow-theory confirmation that already watches industrials and transports can be extended by also tracking a utility average and broader utility indexes. Dow-utility-confirmation is that extension: it requires a utility average, and preferably broader utility indexes, to participate in the turn.

Place one equity idea in the rate backdrop

Rate-regime-context means placing a single equity idea inside the prevailing bond-and-utility backdrop instead of judging the stock move on its own.

Editorial note: the archive records historical turns and one mixed-average distortion. It does not fix how long the next lead will last. The varying leads from days to several months are a reason to wait for dow-utility-confirmation rather than to treat the first utility turn as a completed equity regime shift.