Mike Khouw says utilities are poised for a bounce. The sector got hammered by the bond sell-off. Now it's supposed to recover. This is what passes for analysis on financial television.
Utilities went down because bond yields went up. Yields are still up. But utilities will bounce anyway. The logic holds together if you squint hard enough and forget how math works.
The tug of war he mentions is between people who understand that rising rates destroy utility valuations and people who bought the dip seventeen times in a row and refuse to accept they're holding dogsh*t. Riveting stuff. Real edge-of-your-seat drama.
Khouw trades options for a living. He's looking at charts and implied volatility. He sees a setup. Fine. But let's not pretend this is insight. It's pattern recognition dressed up as market commentary so CNBC has something to run between pharmaceutical ads.
The utilities sector is full of companies that grow at two percent annually and pay dividends that retirees use to buy groceries. When rates spike, those dividends look less attractive. When rates stabilize, the selling stops. A monkey with a calculator could tell you this. But the monkey doesn't get a TV segment.
Retail traders heard "poised for a bounce" and immediately loaded up on calls expiring Friday. They'll be worthless by Thursday. The bounce will come three weeks later after they've already panic-sold at a loss and sworn off utilities forever.
Mike Khouw will be right eventually. Utilities will bounce. They always do. Then they'll go sideways for six months while everyone who chased the bounce learns what opportunity cost means.
Photo by Bozhin Karaivanov on Unsplash
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