Utilities sector

The utilities sector is made up of companies that provide electricity, natural gas, and water, usually as regulated monopolies in the areas they serve. Because it rarely makes sense to build two competing power grids or water networks in the same town, regulators grant a company the right to serve an area and in exchange set or approve the prices it can charge.

That setup shapes everything about how the sector performs. Demand is steady, since households and businesses keep using power and water in any economy, and returns are allowed rather than competed for, so profits tend to grow slowly and predictably. The tradeoff is that upside is capped: a utility can't simply raise prices when demand is strong, it has to ask its regulator first.

Utilities also need enormous, long lived infrastructure that has to be built and maintained, which they typically fund with a lot of debt. That makes the sector sensitive to interest rates. When rates rise, borrowing costs go up and the steady dividends many utilities pay look less attractive next to safer bond yields, which is why utility stocks often move inversely to rates.