Recent Action In Utilities Shares: Warning Sign Of Trouble Ahead For Stocks

The Utilities Select Sector SPDR ETF is now down 5.96% since its record high as posted on September 11th, 2017! Utility stocks are supposed to be among the most conservative groups and also have a reputation for stability and low "volatility". 

Utilities Select Sector SPDR ETF (symbol XLU) Daily Chart

Could the negative action in the Utilities sector be a warning sign of trouble ahead for the broader market? This group just plunged 5.96% in the last 13 trading days!

The proposed Trump Tax Cut has bolstered U.S. stock prices over the last three days, but this major tax reform is not likely to be passed in Congress in its current form anytime soon. While Republican budget deficit hawks seem few and far between in this "age of Trump", there are still a proud few who will rightly see the fiscal disaster ahead if President Trump's tax cuts see the light of day. Massive budget deficits as far as the eye can see will be the obvious result here, which translates into complete legislative failure to pass anything even resembling the original plan as Democrats side with true conservative Republicans (i.e. Bob Corker) to defeat the measure.

For stock market investors, who should you trust? Do you trust President Trump who claims that he "has the votes" to pass the "largest tax cut in history"? Or do you believe Chairman Janet Yellen who says that the Federal Reserve should not wait to normalize (raise) interest rates despite lower than projected inflation. The Federal Reserve is expected to begin liquidating its bloated balance sheet this coming month (October) and the odds now favor another 1/4-point hike in the Fed Funds rate before year end 2017. And some Federal Reserve officials are already talking about three more 1/4-point interest rate hikes in 2018! And one more footnote here: Kevin Warsh is being considered by the Trump Administration to replace Janet Yellen when her 4-year term as Chair ends on February 3, 2018. Mr. Warsh is considered relatively hawkish and has often criticized the Federal Reserve for its accommodative monetary policy and its quantitative easing (QE) programs during the current 8-year economic expansion which began in 2009.

Equity investors should NOT fight the (hawkish) Fed! While proposed initial tax cuts from the Trump Administration look "business friendly", final tax reform legislation is far from certain. If tax reform efforts are successful, which is no guarantee, then the final package enacted will almost certainly be dramatically different and also much less friendly to business than what's on the table right now. 

Charts of the benchmark U.S. Stock Market Indexes will soon look like the bearish chart of the Utilities SPDR ETF (symbol XLU) where multiple sell signals have been triggered by my computer trading system. The old axiom "Buy Rosh Hashanah (9/20) and Sell Yom Kippur (9/29 at sundown)!" looks like a winning strategy this year. A major correction in U.S. stocks appears imminent!

Utilities Select Sector SPDR ETF Monthly Chart (symbol XLU)