Boring Beats Brilliant: How a Utilities ETF Has Quietly Trounced the S&P 500 in Every Recession This Century

Utility stocks have gained attention due to rising electricity demand tied to AI infrastructure build-outs. Data centers require large amounts of power, and hyperscalers expanding facilities have increased expectations for utilities to benefit from higher electricity usage, transmission upgrades, and long-term infrastructure spending. Utilities historically served as defensive “widows and orphans” holdings because electricity and gas demand stayed relatively stable across economic cycles, supported by regulated pricing and predictable cash flows and dividends. Current conditions differ, with natural disaster risks, grid modernization costs, decarbonization mandates, and major capital expenditures linked to AI infrastructure potentially changing the sector’s defensive characteristics. A historical comparison was made between XLU and SPY across major recessions and bear markets over the past century.

"Utility stocks have been in the market limelight recently, and a big reason comes down to rising electricity demand from the artificial intelligence (AI) build-out. Data centers consume an enormous amount of power, and as hyperscalers race to expand infrastructure, investors have started piling into utility companies expected to benefit from rising electricity demand, transmission upgrades, and long-term infrastructure spending."

"Honestly, though, it is a bit of a bittersweet moment for defensive investors who once prized utilities as a classic "widows and orphans" holding. That phrase historically referred to investments considered stable enough to preserve capital and generate dependable income for vulnerable investors like retirees, widows, or families without the ability to withstand large portfolio drawdowns."

"Utilities earned that reputation because electricity and gas demand tends to remain relatively stable regardless of economic conditions, while regulated pricing structures often created predictable cash flows and reliable dividends. But today, the sector looks different. Between rising natural disaster risks, grid modernization costs, decarbonization mandates, and the massive capital expenditure commitments tied to AI infrastructure, utilities may no longer be the sleepy defensive businesses many investors remember."

"So in light of that, I decided to take a walk through history to see how utilities have actually held up against the broader market during periods of economic stress. Specifically, using testfolio.io, I compared the State Street Utilities Select Sector SPDR Fund (NYSEARCA: XLU) against the State Street S&P 500 ETF Trust (NYSEARCA: SPY) to see how utilities stocks performed during major recessions and bear markets over this century."

Read at 24/7 Wall St.