Southern Company reported that its stock price fell to $86.57, down $2.01, or 2.27%. That was in line with the decrease in the S&P Utilities Select Sector Index which fell approximately 2.69% from 751.69 to 731.47.
The markets are reportedly spooked by perceived slowdown in the economy and the possibility that companies pushing artificial intelligence as a generator of increased productivity and profitability may not be panning out in the near future. And let’s not forget a weak jobs report where only 114,000 jobs were created in July, with a significant number of them created in healthcare and government while the tech sector took a significant hit with 20,000 jobs lost.
While public utility commission policymakers may not get up in the morning thinking about Japan, the Bank of Japan’s decision to strike a blow against the carry trade by raising its monetary policy rate did not help matters.
The traders’ angst regarding recession had traders moving into bonds, according to an article in Bloomberg. Shares in utilities have traditionally been a proxy for bonds due to their safe haven status. For the most part, that did not seem to be the case today.
With calls by some market commentators for the Board of Governors of the Federal Reserve System to reduce its target range for the federal funds rate, I would think that such a move would, at least in theory, push up the equity value of utilities. If this is the case, how would a public utility commission explain increased utility equity valuation at relatively higher interest rates when higher equity valuation is taken into account?
I know. At this moment just conjecture given what might just be a one-off. Given the mandate of reconciling investor and ratepayer interests, public utility commission members should remain mindful of how financial market conditions impact financing decisions made by utilities.
Alton Drew
5 August 2024
For more of my take on the American political economy, buy my book at amazon.com/author/altondrew.
Lawyers Write the Bets. Bankers Sell the Bets. 