RBC global strategists are optimistic about the market performance in the year ahead. Sector-wise, analysts maintained an overall positive outlook across sectors, particularly favoring Financials, Materials, Health Care, Energy, and Utilities for performance and valuations.
While most sectors view lower interest rates as bullish, Consumer Staples stands out as an exception. The strategists also made the following strategic adjustments:
- Information Technology downgraded to market weight due to expensive valuations and negative flows;
- Consumer Discretionary is upgraded from underweight to market weight, driven by reasonable valuations and positive EPS revisions; and
- Utilities receive an upgrade to overweight, given a slightly bullish performance outlook, improved valuations, and positive EPS revisions trends, aligning with historical outperformance during falling interest rates.
“We are maintaining our overweight recommendations on Financials, Energy, and Health Care. As noted earlier, our analysts are generally optimistic on the performance outlooks for these sectors and view valuations as favorable. There’s also a lot that we like about these sectors on our strategy work,” the strategists said.
In light of these adjustments and broader recommendations, analysts are shifting towards a Value and Defensive bias in their sector outlook.
This aligns with RBC’s perspective on challenges faced by the Large Cap Growth trade, marked by crowding and valuation concerns.
Instead, analysts see “more opportunity in the Value oriented parts of the stock market for longer-term investors.”
“We have also been vocal about the possibility of a near-term tactical pullback in the US equity market given elevated readings on our sentiment models,” the strategists concluded.