SP500 Financials To Utilities Ratio

Financials and utilities are curious against each other because both sectors are the most sensitive to changes and levels in interest rates, but importantly they react opposite to interest rates. Higher interest rates are negative for utilities as their long-term and very predictable cash flows get a lower present value. Financials gain from higher long-term interest rates as it steepens the yield curve and thus helps banks expand their net interest margin improving profitability. Because these two sectors are so sensitive to interest rates but with the opposite force the spread ratio provides a very fast signal to investors from policy changes and their impact on interest rates and markets.