Of all the areas of the market that people point out as being in a bubble, the Utilities are rarely mentioned. However, the Dow Jones Utility average trades at forward 12 months P/E multiple of 15.7x and yields a pathetic 3.15%. This compares to the Dow Industrial P/E of 15.5x and yield of 2.43%. In other words, you can buy a 1 year T-bill for almost the same yield as the Utilities.
I think the strength in the Utes is simlar to the strength in Energy master limited partnerships and REITS – it’s a desperate search for "low risk" yield.
However, it could also be a sign that there’s not as much inflation as the Fed thinks, especially with commodities breaking down now. Since utilities usually lead bonds by 1 to 2 months, it’s an indication that long term treasury yields need to go down, not up, and the Fed should be easing at this point, or certainly not tightening.
The classic example of the last point came in 1993 – 1994. However, the rule hasn’t been very reliable over the past 5 years because of the Enron-type blowups in the Utility sector…
The top in the utilities in 1993 forecasted a bottom in bond yields one month later…
Compare this to the current environment where utilities are still in an uptrend…
And interest rates are still in a downtrend…
As the lower long bond yield reveals, the Fed rate increases are starting to bite and the economy is slowing. If this trend continues, then the late-economic-cycle energy stocks will continue to come under pressure and Utilities will continue to outperform.
The key now is to figure out if the economy can catch itself, making this just a "temporary slowdown" or if it will continue to roll over. The leading economic indicators, which lead the economy by 6 to 9, months say that this is indeed just a "temporary slowdown" and the economy will remain in a steady growth phase during the second half of 2005. 
Chart courtesy www.businesscycle.com
If this is the case, then several things should happen…1) utilities should roll over from these levels, or at least consolidate sideways; 2) that would signal future higher interest rates because of a strengthening economy; and 3) that would indicate that energy stocks will not enter a bear market but consolidate until the stronger economic growth becomes appearant, at which point they should take off again.
But its all confusion and speculation at this point – which is why the market is up one day and down the next. I think the key is that bond yields are still in downtrend, indicating that the market is still discounting a slowing economy.