The Worst S&P 500 Sectors in the Third Quarter

The third quarter of the year proved to be challenging for two sectors in the S&P 500: utilities and real estate investment trusts (REITs). Despite their usual safe-haven status, these high-yielding sectors became less attractive due to a surge in Treasury yields.

Utilities Sector

The Utilities Select Sector SPDR (XLU) experienced a significant drop of 10.3% since the end of June. Known for their steady earnings, utility companies often outperform during times of market volatility. However, the recent increase in 10-year Treasury yields has overshadowed the sector's high yields. Currently, the utilities ETF's yield stands at 3.61%, which pales in comparison to the implied yield for the S&P 500 of 1.62%.

Real Estate Sector

The Real Estate Select Sector SPDR ETF (XLRE) also experienced a notable decline of 9.9% during the same period. Similar to utilities, REITs are recognized for their resilience during uncertain market conditions. Nonetheless, the surge in Treasury yields has made them less appealing to investors. Currently, REIT ETFs yield around 3.90%, significantly lower than the 10-year Treasury yield of 4.567%.

These underperforming sectors serve as a reminder that even traditionally stable industries can face challenges during periods of increased market volatility and rising yields.