Plunging bond yields have lifted these two stock sectors to record levels

Plunging bond yields have lifted these two stock sectors to record levels


Utilities workers helping restore power near Mobile, Alabama.

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The real estate and utilities sectors are on track to close at record levels on Tuesday as investors search for yield in this low interest rate environment.

Both sectors are on pace to close at new record highs on Tuesday. The S&P 500 Real Estate sector needs to close above 242.44 and the S&P 500 Utilities sector needs to close above 624.42 to close at a record high.

Uncertainty fueled by the U.S.-China trade war and global growth slowing has caused interest rates to tumble. The yield on the 10-year Treasury note fell to its lowest level in three years on Tuesday after a report on the U.S. manufacturing sector showed that the industry contracted in August.

The collapse in bond yields has set the stage for standout performance of the real estate and utilities sectors due to their high dividend payment to shareholders. Investors pile into utilities and real estate in times of uncertainty because of their higher dividends and steady cash flow.

Utilities are generally more stable stocks, as demand for electricity and gas is a steady consumer and business need.

When yields drop, mortgage rates also go down and that means more people will buy real estate or refinance their mortgages. Affordability of real estate boosts activity in the market and lifts real estate stocks.

Warehouse specific real-estate companies are also strong performers this year thanks to the e-commerce boom, which is also lifting the real estate sector. Prologis is up more than 44% and Rexford Industrial is up more than 50% since the start of the year.



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