Published: December 21, 2025 — Week Ahead Outlook
Utilities stocks head into the Christmas-shortened trading week caught between two powerful narratives.
On one side, rate cuts and a “soft-ish” growth backdrop usually favor utilities—classic “bond-proxy” shares that tend to benefit when investors expect borrowing costs to drift lower. On the other, utilities are no longer trading like sleepy defensives. The sector is being re-rated as critical AI infrastructure, because data centers are pulling forward years of electricity demand growth and forcing a historic buildout of generation, transmission, and grid hardware.
That tension—lower-rate tailwinds vs. higher-capex and higher-bills backlash—is likely to define utilities trading in the week ahead, especially with liquidity thinning into the holidays.
Below is what matters most for utilities stocks for the week of Monday, Dec. 22 through Friday, Dec. 26, 2025.
1) Market setup: a holiday week with real macro catalysts
This is a shortened U.S. trading week: U.S. equity markets close early at 1:00 p.m. ET on Wednesday, Dec. 24, and are closed Thursday, Dec. 25 for Christmas. [1] Bond markets are also expected to close early (2:00 p.m. ET) on Dec. 24, per SIFMA’s recommendation. [2]
Holiday weeks often bring lower volume and sharper, more technical moves—and utilities can exaggerate that effect because the sector is heavily owned by income-focused investors and defensively positioned portfolios.
Even so, the calendar is not empty. Markets are bracing for a cluster of delayed and regular macro reports, including Q3 GDP, durable goods, industrial production/capacity utilization, and consumer confidence, plus weekly jobless claims. [3]
Why utilities investors should care: these reports feed directly into rate expectations, which remain one of the fastest levers on utilities valuations.
2) Interest rates: the “cuts happened,” but Fed speakers are hinting at patience
Utilities’ sensitivity to rates isn’t news. What’s new is that rate policy is now colliding with the AI capex cycle.
The Federal Reserve’s benchmark rate sits at 3.5%–3.75%, after recent cuts, and at least one prominent Fed voice is now signaling the central bank may prefer to hold steady for months to assess inflation dynamics. [4]
Meanwhile, the U.S. 10-year Treasury yield remains around the low-4% area (roughly 4.1% recently), keeping the tug-of-war alive between dividend yield appeal and valuation pressure. [5]
Week-ahead implication for utilities stocks:
- If incoming data or Fed commentary pushes yields down, utilities can rebound quickly—especially higher-quality regulated names.
- If yields drift up, utilities may lag again, because the sector is simultaneously digesting debt-heavy investment plans tied to grid upgrades and new generation.
3) The sector backdrop: utilities pulled back, but the long-term story is bigger than “defensive”
After a strong run earlier in 2025, utilities have cooled off since mid-October. Barron’s notes the Utilities Select Sector SPDR ETF (XLU) is down about 7% since mid-October, even as the broader S&P 500 has been relatively resilient, and argues the drawdown looks more like positioning than fundamentals. [6]
At the same time, the sector is still up meaningfully year-to-date. For example, XLU’s total return was around +15% YTD as of Dec. 19, 2025 (with dividends reinvested). [7]
That combination—recent pullback + still-strong annual gains—creates a market that can flip quickly:
- “Dip buyers” see a valuation reset.
- Skeptics see a sector that ran too far on AI optimism and now faces political heat over power bills.
4) The dominant theme: AI data centers are rewriting the utilities demand curve—again
The utilities bull case now increasingly hinges on one question: how durable is AI-driven electricity demand growth?
Multiple forecasts point to a step-change in load:
- BloombergNEF has put aggressive scenarios into the mainstream, with U.S. data center power demand potentially reaching 106 GW by 2035. [8]
- Separate reporting citing the U.S. Department of Energy warns data centers could represent 12% of U.S. electricity consumption by 2028. [9]
- Reuters has highlighted how Big Tech is shifting toward an “all-of-the-above” power strategy as it scrambles to secure reliable supply—spanning renewables, gas, and other sources—because grids are tightening. [10]
Why this matters for utilities stocks next week:
Investors are increasingly sorting the sector into “AI winners” and “everyone else,” rewarding utilities that:
- Serve fast-growing data center corridors,
- Can add generation and interconnection faster,
- Have constructive regulators and recover capex efficiently.
But the AI theme has a built-in volatility trigger: any headline suggesting AI infrastructure spending is slowing—or that data centers will be less power-hungry than feared—can hit the entire “power for AI” complex, including utilities-adjacent names. [11]
5) The PJM shock: record capacity prices put affordability front and center
One of the most important utilities-related developments into Dec. 21 is the latest PJM capacity auction, which cleared at a record $333.44 per megawatt-day—a level that signals a tightening supply-demand balance and points toward higher future costs for customers in the PJM footprint. [12]
Reuters reports the auction also fell short of a reliability target by roughly 6,600 MW, underscoring that demand growth is outpacing supply additions in parts of the grid. [13]
Who “wins” and who faces risk?
- Higher capacity prices can be supportive for power producers and generators exposed to PJM market pricing. [14]
- Regulated utilities operating in the region may face greater political and regulatory scrutiny if consumer bills rise sharply—even when costs are pass-through items.
This matters for the week ahead because the market is now pricing a new reality: electricity affordability is becoming a headline risk, not just a policy footnote.
6) Washington steps in: FERC forces PJM to rewrite rules for data center connections
Just as investors were digesting the PJM price signal, the U.S. Federal Energy Regulatory Commission (FERC) delivered another catalyst: it directed PJM to implement new rules addressing how large “co-located” loads—including AI-driven data centers located near power plants—connect and pay for grid services. [15]
The Associated Press framed it as a policy shift that could allow tech companies to link massive data centers more directly to power plants, accelerating access to electricity—but also raising concerns about whether the public grid and ordinary ratepayers are protected. [16]
Why utilities investors should care right now:
This is the regulatory “pressure valve” to the AI demand story. Faster connections can support growth. But if policymakers decide that data centers must bear more costs—or if regulators push back to shield households—utilities earnings visibility can change quickly.
7) Debt and capex: the market is starting to ask, “How will all of this be financed?”
The AI-grid buildout is not cheap, and the funding channel is becoming a bigger part of the equity story.
Recent reporting (sourced from Bloomberg) notes U.S. utilities’ bond sales rose 19% in 2025 to a record $158 billion, and cites a forecast for another increase in issuance next year. [17]
At the same time, the Edison Electric Institute (EEI) projects massive investment: member companies are expected to invest roughly $208 billion in 2025, and more than $1.1 trillion from 2025–2029 to strengthen and expand the grid. [18]
Week-ahead implication:
Utilities stocks may trade less like pure yield plays and more like capital-cycle equities—meaning:
- Better sentiment when bond markets feel calm and spreads are stable,
- More fragility when financing conditions tighten or political scrutiny intensifies.
8) What analysts are saying right now (as of Dec. 21): value is emerging, but the “bill backlash” is the swing factor
Several prominent strategy notes and media analyses have converged on a similar conclusion:
Utilities look cheaper than they did, and select names are being singled out
Barron’s argues utilities now appear undervalued versus the broader market on earnings multiples, highlighting American Electric Power (AEP) and Dominion Energy (D) as examples of utilities tied to regions seeing heavy data center development. [19]
Big banks are explicitly framing utilities as AI infrastructure beneficiaries
Business Insider reports Bank of America highlighting utilities it sees as positioned for the AI-driven power cycle, including PSEG (PEG), Alliant (LNT), Sempra (SRE), Southwest Gas (SWX), and Xcel (XEL). [20]
But political and regulatory risk is rising alongside the opportunity
Reuters Breakingviews captures the emerging reality: private capital is increasingly interested in utilities because of AI-related demand growth and grid modernization—while also warning that politics and consumer price pressure can cap upside. [21]
This “opportunity vs. affordability” balance is exactly what will likely drive the sector’s day-to-day tone in the coming week.
9) Utilities stocks: a practical “week-ahead” watchlist by theme
Instead of treating utilities as one bucket, the market is trading them in themes. Here’s a clean way to structure what to watch next week:
A) Regulated electric utilities with data-center exposure (growth + regulation)
- Watch for any fresh headlines on load forecasts, interconnection timelines, or rate recovery (especially in PJM-adjacent regions). [22]
B) Merchant power / generation-linked names (pricing leverage, more volatility)
- PJM pricing news can move these quickly—sometimes more than it moves regulated utilities—because auction outcomes can change revenue expectations. [23]
C) Water utilities (M&A and regulatory uncertainty)
- Analysts have been cautious here; Barclays’ downgrade of Essential Utilities (WTRG) on merger-related concerns is part of that tone. [24]
D) “Picks and shovels” for the grid buildout
- Equipment and grid tech stocks can swing on the same AI narrative as utilities, especially when markets debate whether data center growth is accelerating or slowing. [25]
10) The week-ahead checklist (Dec 22–26, 2025)
Here are the specific, concrete events that can move utilities next week:
- Trading conditions: early close Wednesday, Dec. 24 (1:00 p.m. ET equities; 2:00 p.m. ET bonds); markets closed Thursday, Dec. 25. [26]
- Macro data (rate expectations): Q3 GDP (delayed), durable goods, industrial production/capacity utilization, consumer confidence; jobless claims on Wednesday. [27]
- Policy narrative: follow-through coverage and commentary on FERC’s PJM directive for co-located load rules (data centers near power plants). [28]
- Grid pricing/affordability narrative: continued analysis of PJM’s record capacity auction and potential political responses tied to customer bills. [29]
- Credit markets: watch for any renewed chatter about utility issuance and spreads, given the record 2025 issuance figure cited in recent reporting. [30]
Bottom line for utilities stocks into the Christmas week
Utilities are entering the final full week of December with a rare mix of drivers:
- Supportive: recent Fed cuts and the prospect of lower rates over time, plus the structural AI/data-center demand cycle. [31]
- Challenging: political and regulatory sensitivity around electricity affordability, highlighted by PJM’s record auction and FERC’s push to clarify who pays for data-center connections. [32]
- Market mechanics: thin holiday liquidity that can amplify swings.
References
1. www.nyse.com, 2. www.sifma.org, 3. www.investopedia.com, 4. www.reuters.com, 5. ycharts.com, 6. www.barrons.com, 7. totalrealreturns.com, 8. www.utilitydive.com, 9. www.theguardian.com, 10. www.reuters.com, 11. www.barrons.com, 12. www.reuters.com, 13. www.reuters.com, 14. www.barrons.com, 15. www.reuters.com, 16. apnews.com, 17. finance.yahoo.com, 18. www.eei.org, 19. www.barrons.com, 20. www.businessinsider.com, 21. www.reuters.com, 22. www.reuters.com, 23. www.barrons.com, 24. www.investing.com, 25. www.barrons.com, 26. www.nyse.com, 27. www.investopedia.com, 28. www.reuters.com, 29. www.reuters.com, 30. finance.yahoo.com, 31. www.federalreserve.gov, 32. www.reuters.com
