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Coronavirus Pulls Down Market, Utilities Remain a Safe Bet

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A statement made by an anonymous person is going viral on the web that says “The way the markets are behaving, it seems the Coronavirus will kill more invested people than infected ones.”  Sadly, coronavirus or Covid -19 is not only claiming precious lives but also wiping out investors’ gains.  Major indexes across the globe lost in the last week due to huge sell-off, triggered by the impact of this virus on global economy.

The sell-off across the globe could continue this week as well, primarily due to a lack of a concerted effort to control this global crisis. The global economy, which was still recovering from the U.S.- China trade war, is facing another crisis. This has the capability to turn into a pandemic unless controlled, and have an adverse impact on global and U.S. economic growth. The S&P 500 lost nearly 11.5% last week and the index might go down further this week, as the California governor issued a release stating that the state is currently monitoring 8,400 for Covid -19. Already seven U.S. states have reported Covid -19 cases.

Despite measures taken to control the spread of the deadly virus, Covid -19 has already spread in nearly 56 countries across the globe, with 84,000 infected and 2,900 losing their lives.

Amid such turmoil in U.S. markets, it is advisable to invest in domestic-focused Utilities to ride out the storm. Utilities have been insulated from the global turmoil as majority of their earnings are regulated and come from domestic holdings. In the past three months, Utilities have lost 2.3%, much narrower than the S&P 500 group’s decline of 4.8%.  

Utilities are capital sensitive and benefit from rate cuts. Coronavirus’ negative impact on economic growth might force the Fed to lower interest rates one more time in the March Fed meeting. It could help utilities to get funds from the market at a cheaper rate and continue with infrastructure strengthening initiatives. The demand for utility services doesn’t fluctuate too much even in weak economic conditions.  

Investors should exercise caution in the current choppy market conditions.The fear of coronavirus can lead to correction in the market ( Read more: Will Coronavirus Ignite a Correction?)

However, one can consider utilities like TerraForm Power, Inc. TERP, Veolia Environnement S.A. VEOEY, Algonquin Power & Utilities Corp. (AQN - Free Report) and NextEra Energy Inc. NEE, which registered gains of 22.3%, 13.3%, 6.3% and 9.3%, respectively in the past three months. TerraForm Power, Veolia Environnement, and Algonquin Power & Utilities have a Zacks Rank #2 (Buy), while NextEra currently has a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

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