Why Utility Stocks go up when the Economy Goes Down

Almost everyone is wondering what to invest in that won’t end up in a wild market ride. Some payday loan lenders offered stock that did pretty well in the worst of the market panic, but heavy regulation of the industry can affect profitability. Now, investors are eyeing utilities as stable areas that will survive deflation or inflation fears.

The Weather

Wild weather in the northeast is driving up demand for energy. When it gets too cold or too hot outside, there are few people who will voluntarily do without heating or cooling utilities. The more wild the weather, the greater likelihood of increased demand.

Paid First

Utility bills take priority after shelter and food. It is something that everyone needs and has a big incentive to stay current. People can fall behind, but the will try their best to make sure the heat and electricity stay on and pay those bills. Other types of stocks rely on some commodity that is not essential and so defaults are higher when either inflation or deflation hit and affect either the earning power or the market value of the commodity.

Safe Bet

Utility stocks have historically been seen as a safe bet even the returns are not as glamorous as other choices. With technology stocks under-performing and nothing giving really stellar returns, utility stocks become more popular due to their consistent returns. They may not reach dizzying heights, but the won’t drop precipitously overnight either.

Variety

If you are investing via a fund you can get a variety of different types of utility companies in your portfolio. By increasing the variety you have less chance that anything dramatically bad will happen to the returns. If you have plenty of time for your money to grow and you want to add something low-risk and stable to diversify your portfolio, then utility stocks are a good choice for you.