Utilities: The Tortoise in a Hare’s World

When markets crash, headlines scream, and portfolios hemorrhage, smart investors know one thing: it’s time to get defensive. And what’s more defensive than an industry that provides things people literally cannot live without? Enter utilities—the quiet, reliable workhorses of the market. While they may not have the sex appeal of tech stocks or the thrill of a biotech moonshot, utility stocks tend to do one thing exceptionally well in a downturn: hold their ground. People will literally go hungry in order to continue using social media, for which we need power and internet.

Power is everything

The fundamental reason utilities shine in a recession is simple—people don’t stop using electricity, water, or natural gas just because GDP is contracting. If anything, they might cut back on vacations, dining out, or upgrading to the latest overpriced gadget, but they will absolutely keep paying the power bill.

While other industries face collapsing demand, utilities enjoy a consistent, nearly inelastic customer base. They aren’t selling luxury; they’re selling survival. A recession doesn’t make people suddenly enjoy sitting in the dark, taking cold showers, or sweating through the summer with no A/C (fun fact: here in Alabama you can actually just walk outside Jun - Aug and you’re in a warm bath). This baseline necessity gives utilities stability of demand.

Regulation: The Moat No One Talks About

Unlike many sectors that get slaughtered in a downturn due to competition or pricing pressure, utilities benefit from regulated markets. They operate in monopoly or near-monopoly conditions, meaning that while they may not rake in explosive profits, they also don’t suffer existential crises when the economy takes a dive. Regulators allow them to pass on costs through rate adjustments, ensuring steady revenue.

Now, is that regulation a double-edged sword? Of course. They can’t just jack up prices whenever they feel like it. But in a downturn, predictability is worth more than hyper growth potential. When investors flee high-risk assets, they run toward industries that offer one magical word: stability. Stable is good. Ask literally any horse.

Dividend Dependability (Dividendependability)

One of the biggest selling points of utility stocks is their dividends. These companies know their business model isn’t built for wild expansion, so instead of plowing profits into risky ventures, they reward investors with consistent, often growing dividends.

During recessions, when other companies slash or eliminate dividends to conserve cash, utilities usually stay firm. This makes them a magnet for income-focused investors—particularly retirees, institutions, and anyone who would rather not watch their portfolio implode during economic turmoil.

Inflation Protection: The Hidden Bonus

In addition to their recession-resistant nature, utilities also offer a degree of inflation protection. Energy and water providers can, in many cases, adjust their rates to account for higher costs. While they won’t be the ultimate hedge against inflation like, say, gold or real estate, they do offer a buffer against purchasing power erosion—something that’s increasingly relevant in today’s market.

The One (Mild) Downside: Interest Rate Sensitivity

Now, before we declare utilities the undisputed champions of recession investing, let’s acknowledge the one Achilles’ heel: interest rates. Utilities are capital-intensive businesses, and they often carry substantial debt. When interest rates rise, their borrowing costs do too, which can eat into profits.

Additionally, in a rising-rate environment, investors sometimes shift out of utilities and into bonds, since fixed income suddenly becomes more attractive. However, if we’re talking about a recession—not a high-growth, high-inflation environment—rates are often falling or at least stable. That means utilities get to keep playing their safe, steady game without much interference.

In a Recession, Who Ya Gonna Call?

…literally anyone. Because you still have a phone, and electricity to charge it. Because you paid your bills. While the financial world burns, utilities keep the lights on—literally and figuratively. They won’t double your money overnight, but they also won’t evaporate in a market meltdown. With stable demand, regulatory protection, and reliable dividends, they offer the kind of dull, predictable performance that suddenly becomes very attractive when everything else is spiraling.

So, if you’re looking for a recession play, utilities aren’t just a good option—they’re the one bet that lets you rest easy while the rest of the market panics.