Market volatility is causing investors to seek the safety of uncorrelated assets like gold and bonds. However, the utilities sector could offer up a safe haven sector that traders could also take advantage of during heavy market fluctuations.
Regardless of how the economy is doing, consumers will always have a need to keep the lights on. That said, utilities stocks can be beneficial in times of market uncertainty like now.
"Safety seekers should look to utility stocks as the stock market tries to figure out just where it might go next," Barron's suggested.
A look at the S&P 500 and the S&P 500 Utilities Index provides an indication of how well the utilities sector has been absorbing the latest volatility. The broader S&P index is down 8% for the year, while the utilities index is up over 2%.
If market volatility continues to persist, traders may want to give utilities a closer look as not only a safe haven play, but also a backdoor play on artificial intelligence (AI). While the biggest tech players in AI are feeling the brunt of the market correction, traders can still find opportunities in sectors like utilities, which can piggyback off the popular AI investment theme. As more businesses and consumers continue to use AI, the current infrastructure that powers the technology will require higher energy consumption, especially electricity. In turn, this should help boost utilities moving forward.
Triple Leverage Utilities
Traders who like the prospect of utilities gaining strength amid market uncertainty may want to consider the Direxion Daily Utilities Bull 3X Shares (UTSL). The extra 3x leverage could amplify profits should the utilities sector continue to see strength amid a falling broader market.
UTSL seeks daily investment results equal to 300% of the daily performance of the Utilities Select Sector Index. The index contains companies from the utilities sector that include the following industries: electric utilities; multi-utilities; water utilities; independent power producers and energy trades; and gas utilities.
Previously mentioned was the potential effect of AI on utilities. When the market dust settles and AI can resume its upward trajectory, traders can also use the Direxion Daily Robotics, Artificial Intelligence & Automation Index Bull 2X ETF (UBOT). The fund seeks daily investment results that equal to 200% of the daily performance of the Indxx Global Robotics and Artificial Intelligence Thematic Index. That index aims to provide exposure to companies in developed markets expected to benefit from the growing adoption and use of robotics and/or AI.
