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AI · Sector Rotation · Technology · Utilities
Ned Davis Research (NDR) has upgraded the technology sector to overweight while simultaneously downgrading the utilities sector to marketweight, based on a resurgence of Big Tech driven by AI optimism and a weakening investment case for utilities.
NDR's U.S. sector strategist Rob Anderson and senior U.S. equities analyst Thanh Nguyen state that technology's risk/reward has improved following an 18% tumble into the March 30 trough, with earnings estimates holding up and valuation multiples returning to long-term averages. The sector's biggest names—Nvidia, Apple, and Microsoft—account for over 56% of tech's market capitalization, driving performance even as software remains weak.
Conversely, the utilities sector, despite a 7.5% gain in the first quarter, has lost its defensive appeal; its dividend yield is now 1.6 percentage points less than the 10-year Treasury yield, the widest spread since 2007, and technical models have turned bearish. While AI-driven electricity demand remains a long-term tailwind for utilities, NDR concludes that income alone is no longer a compelling reason to invest.
NDR's chief global strategist Tim Hayes expresses concern about the broader market rally's narrow breadth, with only one of five technical gauges generating a buy signal, suggesting a cautious outlook for a broader equity allocation upgrade.
