Avoid buying XLU dip; valuation is expensive relative to history and yield is uncompetitive against Treasuries, leading to dead money or further decline.

This is a State Street Utilities Select Sector Spider ETF or XLU. It's sort of shorthand for how the sector is doing. I'm going to tell you, I will not buy this dip. I don't like it.

I don't like what it represents. I don't like how it acts. It's in no man's land.

so to make the case I'm making is not every dip is buyable. I don't like this one. I think at best you have dead money and at worst this could get way worse.

When you look at utilities right now, they've pulled back a lot this year. You might even call it cheap because it's a 17.3 PE ratio and the 5-year average has been almost 23. That would be short-sighted.

If you zoom out to a true long-term 10-year historical average on uh the PE ratio for the utility sector, it's more like 12. So 17 is cheaper than 22, but historically not a meaningful discount.

we had like a structurally distorted multiple in the space because of AI data center narrative and we were treating regulated utilities like they could be growth stocks. Uh, if you buy this dip, you're basically paying a 36% premium over the historical long-term PE, but it really does not look like that story is intact or going to hold up.

The other problem here is the trailing dividend yield is only 2.94%. Historically, people before AI data center power, people bought these stocks for the yield and as we've said 85 different ways.

The 10-year Treasury note is now at 5 and a4%. So, I think the smart money is going to opt for that rather than the risk of a utility delivering a capital return in excess of that.

Um, so I think it's a it's a it's a a dip that you want to avoid rather than take advantage of. Maybe if it gets much cheaper, we'll revisit that idea. I only have one utility name in the firm's Porterhouse concentrated momentum strategy.

So, out of the I don't know four dozen stocks in this in this industry, I have one. And it looks like it's about to get bounced out anyway on our next rebalance.

This is energy, guys. Did you hear what I said? This is the best looking utility in the market for in order for it to make Porter House. And since it got into the index uh in into the uh the strategy that we run, it's looked like [ __ ] ever since.

And I think we're about to kick it unless something radically changes. So, if that's the best looking name in the group, it it should tell you a little bit about how the rest of them look technically.

Um so, they're not cheap and the charts are pointing down and to the right.