I think in our current macro regime, we need to look one level deeper to understand traditional asset class correlations. E.g. utilities outperforming due to AI energy use, gold breaking correlation with dollar due to China buying. There seem to be a lot of idiosyncratic situations going on simultaneously.
Your chart does not indicate CPI outperforming Utilities. Simply dividing CPI index by XLU price has no practical meaning. You should look at inflation adjusted returns of XLU, which is around 4% since 2015.
XLU tends to underperform SPY over the long term in terms of absolute returns, as it is a defensive play, but the upside of this is that XLU tends to be less volatile, see for example its performance in 2022. XLU's recent underperformance is indicative of the risk on mentality in the market as investors ditch defensive plays in pursuit of growth stocks, which is not surprising given that US economic growth has been stronger than expected. However as they say past performance is not indicative of future returns. The value of XLU is its defensiveness and relatively low correlation to the market, which adds diversification to a portfolio.
While I think your thesis makes sense, industry activity matters more for direct positioning, i might contend that the macro story is what will help inform the industries to be considering
I think in our current macro regime, we need to look one level deeper to understand traditional asset class correlations. E.g. utilities outperforming due to AI energy use, gold breaking correlation with dollar due to China buying. There seem to be a lot of idiosyncratic situations going on simultaneously.
Re utility electricity inflation via R Friedland https://x.com/robert_ivanhoe/status/1790476569099550891?s=61&t=PHw_uwJPgu_EiRms4Oe2Sw
Your chart does not indicate CPI outperforming Utilities. Simply dividing CPI index by XLU price has no practical meaning. You should look at inflation adjusted returns of XLU, which is around 4% since 2015.
XLU tends to underperform SPY over the long term in terms of absolute returns, as it is a defensive play, but the upside of this is that XLU tends to be less volatile, see for example its performance in 2022. XLU's recent underperformance is indicative of the risk on mentality in the market as investors ditch defensive plays in pursuit of growth stocks, which is not surprising given that US economic growth has been stronger than expected. However as they say past performance is not indicative of future returns. The value of XLU is its defensiveness and relatively low correlation to the market, which adds diversification to a portfolio.
While I think your thesis makes sense, industry activity matters more for direct positioning, i might contend that the macro story is what will help inform the industries to be considering