Utility

In economics, utility refers to the satisfaction or benefit a consumer derives from consuming a good or service. In financial markets, utility also refers to the utility sector — companies that provide essential services such as electricity, gas, and water. Utility stocks are typically considered defensive investments due to their stable revenues and consistent dividend payments.

During periods of economic uncertainty or market downturns, traders and investors often rotate into utility sector stocks as a defensive play. Because utilities provide essential services with inelastic demand, their revenues tend to remain stable even when the broader economy contracts. A CFD trader might take long positions in utility stocks during a risk-off environment, while simultaneously reducing exposure to more cyclical sectors. Monitoring sector rotation into utilities can also serve as a broader indicator of declining market confidence.