We've been hearing quite a bit about unseasonably warm weather and the impact it's been having on retailers, but the warmer than expected weather is also impacting other companies that benefit from more seasonal temperatures as well. One other area that is getting hard hit due to the unseasonably warm temperatures this year is utilities as utility output has dropped significantly month-over-month.
The simple truth is with temperatures far above seasonal norms, people are not ratcheting up their thermostat as they have in prior years and that is weighing on shares of utilities. Unsurprisingly, over the last seven-plus weeks, shares of the Utilities SPDR (XLU) - Get Utilities Select Sector SPDR Fund Report have dropped 7.5%.
What's to blame?
The primary driver for warm temperatures is El Niño, with warm tropical Pacific Ocean waters changing weather patterns around the globe. As we've seen over the last several weeks, the El Niño ripple effect has impacted winter weather over the United States. According to the National Oceanic and Atmospheric Administration, when it matures, the current El Niño will likely be among the top three on record, which means warmer average temperatures across the bulk of the United States.
Aside from retailers like Macy's, Nordstrom, Gap, JC Penney's and others that are filled to the gills with winter apparel and other seasonal items, what does this mean for those companies that profit from the thermostat? We saw a sharp drop in utility output during October per the Board of Governors of the Federal Reserve System's monthly report on Industrial Production and Capacity Utilization. With the unseasonable temperatures continuing into November, we're likely to see another horrible utility output print later this week when we receive the November Industrial Production Report.
Furthermore, based on warmer than usual temperatures so far this December, it's hard to see a pronounced snap back in utility output when the December Industrial Production and Capacity Utilization Report drops in mid-January. All of this means the usual pick up in utility output that gives way to a seasonal pick up in utility stocks is not likely to happen as we exit 2015. That means, at least for now, TheStreet's Growth Seeker portfolio will look past utility stocks such as NextEra Energy (NEE) - Get NextEra Energy, Inc. Report , Duke Energy (DUK) - Get Duke Energy Corporation (DUK) Report , Southern Company (SO) - Get Southern Company Report and others as well as the Utilities SPDR (XLU) - Get Utilities Select Sector SPDR Fund Report to fish in waters that offer far better growth prospects over the coming quarters.
Chris Versace is the portfolio manager for Growth Seeker and fundamental analyst for Trifecta Stocks. Growth Seeker is long UA and Trifecta is long FL.
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