Chapter 5
UTILITIES SECTOR DRIVERS
This chapter outlines some of the most important macro-drivers for the Utilities sector. Drivers are factors that impact—positively or negatively—the performance of stocks, industries, sectors, and the entire market. In this chapter, we’ll look at how drivers impact the performance of Utilities—both the broad sector and individual stocks—relative to the benchmark. There are three broad categories of drivers you can use to examine the forward-looking prospects for any stock market sector:
1. Economic drivers
2. Political drivers
3. Sentiment drivers
Drivers—in any of these categories—impact Utilities’ relative performance in a variety of ways: They may affect earnings, profitability, growth, cost of capital, industry regulations, and investors’ appetite for risk, among other things. However, as investors, we are primarily concerned with how drivers ultimately impact investment returns relative to the broader market.
As you learn about drivers in this chapter, it’s important to remember the relative importance of different drivers varies throughout time. Often, different drivers point in different directions, and it is up to you, the investor, to determine which drivers are most important at any given point.
ECONOMIC DRIVERS
Macroeconomic indicators take the pulse of the economy. Whether it’s GDP, interest rates, or inflation, they help paint a picture of the current state of the economy. And they can help you shape expectations about the economy ...
