Key Highlights

● Utilities finished as the worst-performing S&P 500 sector.

● Rising Treasury yields made utility dividends less attractive.

● Not every utility fell, with some benefiting from data-center demand.

● Real estate and consumer staples also lagged the same day.

Utility stocks slid, weighed down by a jump in long-term bond yields that hit one of the market's most rate-sensitive groups. Utilities finished as the weakest of the 11 S&P 500 sectors, with real estate close behind, while eight of 11 sectors rose overall, led by technology and energy.

The key driver was the bond market, with long-dated Treasury yields climbing, posting their largest daily gain in a month, after the Federal Reserve left its benchmark rate range unchanged, with two officials dissenting in favor of a hike.

Why Yields Matter for Utilities

Utilities are often called bond proxies, since investors buy them for their reliable income, and when Treasury yields rise, government bonds offer a more competitive payout with less risk, pulling money out of these sectors. Utilities also carry heavy debt to fund power plants and grids, so higher rates raise their costs.

American Electric Power slipped even after raising its outlook and citing data-center demand, underscoring how heavy the rate pressure was on the group, while NiSource was an exception, edging higher on a narrowed 2026 guidance and an expanded Microsoft agreement.

The AI Power Angle

Utilities have drawn new interest in recent years because of soaring electricity demand from data centers, a theme reflected in reports from both AEP and NiSource. But the session showed that interest rates can still overwhelm the growth story in the short run.

While AI-linked equipment makers such as Vertiv soared, utilities, including some that supply power to data centers, lagged, with the pull of higher yields outweighing that story for most utility stocks.