Reply to these Two responses SEPARATELY!!!!

1- I believe the utilities sector in the United States economy is currently overvalued. I believe this because traditionally investors resort to utility investments during peak times of fluctuation within the economy because it is a more stable sector compared to the others. For example, the recent COVID-19 global pandemic has caused investors to buy a stake in the utilities sector due to the fact that there is less risk associated with it compared to other sectors. Also, I assume that buying into this particular sector enables investors to protect their investing portfolio from looking bad and losing significant amounts of money during times of economic distress. However, I strongly feel that once the pandemic is over or the severity of it has lessened, the utilities sector will experience another adjustment since other companies and organizations will begin to function as usual. This change will likely encourage investors to adjust their types of investments in order to accumulate higher returns and buy into more desirable stocks that were not desirable during the peak of the pandemic. The loss of investments in the utilities sector will cause the stock prices of utilities to decrease significantly which will return it back to a normal level and will no longer be seen as overvalued.

Recently, Edison International (EIX), a member of the S&P 500, had an extremely attractive dividend yield at 4.5 and concrete dividend growth prospects (Strauss, 2021). One of the main reasons as to why their dividend yield has remained so high amidst the global pandemic is because the utilities sector is protected by the government; protection from the government eliminates any major competition and a low chance of being affected by large market forces (Dividend.com).

References:
Dividend history of the utilities sector. Dividend.com. (n.d.). Retrieved November 22, 2021, from https://www.dividend.com/how-to-invest/dividend-history-of-the-utilities-sector/.

Strauss, L. C. (2021, September 8). 5 utility stocks for investors chasing yield. Barron’s. Retrieved November 22, 2021, from https://www.barrons.com/articles/utility-stocks-yield-51631063820.

2- The S&P 500 real estate sector which is primarily made up of real estate investment trusts, property managers and developers is seen to be overvalued. Robert J. Shiller from the New York Times stated that real home prices nationally have gone up 71 percent since February 2012. With prices being this high, it produces a strong incentive to build more houses – which could be expected eventually to bring prices down. The price-to-construction cost ratio (using the Engineering News Record Building Cost Index) is only slightly below the high reached at the peak of the housing bubble, just before the Great Recession of 2007-9. (Shiller, 2021)

The utilities sector is seen to be overvalued because if we take in the whole pandemic situation, many investors were forced to invest more into utilities since it is less risky. This was to protect their investments portfolios from defaults and trying to cover up liabilities. This sector was one of only two sectors’ that gained more than 4% adding to 4.1% last year, while the interest rate was still low. The high dividend yield attracts more investors to invest in these sectors due to uncertainty. The utility sector is likely to see market adjustment when the pandemic is over which means that companies and organizations will start to function normally. This will lead the investors to change the type of investments to grab higher returns and buy more attractive stocks since the stock market is still low and this will lead to adjust utilities sector’s prices.

Communication services can be seen as undervalued but along with a strong weighting, the communication services sector has returned 9.93% YTD compared to the S&P 500 returns of 3.13% YTD. The sector can be split into five core industries: diversified telecommunication services, entertainment, media, wireless telecommunication services, and interactive media & services. These five industries provide a plethora of services including search engines, cable television, social media platforms, streaming services, and cell-phone provision. (Hennel,2021)

References:

Shiller, R. J. (2021, October 1). Stock, bond and real estate prices are all uncomfortably high. The New York Times. Retrieved November 23, 2021, from https://www.nytimes.com/2021/10/01/business/stock-bond-real-estate-prices.html.

Equity sector report by: Christian hennel – ship. (n.d.). Retrieved November 23, 2021, from https://www.ship.edu/globalassets/business/imp/student_reports/communication_services_sector_report.pdf.