Jim Cramer from CNBC discussed the utilities sector on Wednesday, noting that its recent rally may indicate a slowing economy and potentially lower interest rates. Utilities tend to perform well in a slowing economy, and the sustained rally in this sector suggests a slowdown is on the horizon. The Dow Jones Utility Average, consisting of 15 major utility stocks, has been steadily climbing since April 16.
While utilities are not considered ideal market leaders, they tend to thrive in economic downturns because consumers must continue to pay their bills. They also rely on issuing debt to support their operations, especially as they expand to accommodate the growing demand for data centers. Despite the need for borrowing, Cramer highlighted that interest rates are not rising, which is beneficial for these stocks.
Cramer emphasized that signs of a slowing economy have been emerging for weeks, and the rise in utilities further supports this notion. He suggested that Federal Reserve Chair Jerome Powell’s comments in April, indicating fewer interest rate cuts than expected, may have contributed to the economic slowdown. Cramer highlighted that utilities are a reliable indicator of market conditions and their steady rally suggests that a slowdown may be on the horizon.
In conclusion, Cramer stressed the importance of paying attention to the utilities sector as a barometer of economic trends. The sustained rally in utilities stocks, coupled with Powell’s commentary, may signal a forthcoming economic slowdown.