One quirk of the U.S. bull market is that defensive stocks are rising as fast as economically sensitive ones like technology and bank shares. Options traders are betting that will end.
Skepticism is focusing on utilities, whose 22 percent rally in 2014 is the biggest among 10 industries in the Standard & Poor?s 500 Index. (SPX) Demand for options that protect against future losses reached the most in 21 months relative to bullish ones, data compiled by Bloomberg show.
Valuations for power producers climbed last month to the highest level in a year versus the benchmark gauge, making them vulnerable, according to Alan Gayle of RidgeWorth Capital Management. Bears are multiplying before Federal Reserve rate increases that may lessen demand for the dividends paid by utility companies, the second-highest in the S&P 500.
?Utilities are overvalued and don?t represent a good play from a fundamental perspective,? Gayle, who helps oversee about $50 billion as a senior strategist at RidgeWorth, said in a Nov. 6 phone interview from Atlanta. ?There?s downside risk to utilities as interest rates trend gradually higher over the next several years.?
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