Wells Fargo is bullish on four S&P 500 sectors following a stock market correction that was triggered by risk sentiment and geopolitics.
In a new investment strategy note, Wells Fargo says it is in “favor” of stocks in the information technology (IT), industrials and utilities sectors.
Wells Fargo says it is also recommending financials, a sector that comprises nearly a third of the portfolio of the investing conglomerate associated with Warren Buffett, Berkshire Hathaway. Currently, Berkshire Hathaway owns Bank of America, American Express, Visa, Mastercard and Ally Financial, which, combined, constitute approximately 30% of the investing conglomerate’s public stock portfolio.
On the IT sector, Wells Fargo expects earnings and revenues to grow, supported by “AI-related investment and capital expenditure follow-through.” Wells Fargo also says the defense-exposed industrial stocks will benefit from increased expenditure amid rising geopolitical risks.
Wells Fargo is, however, bearish on the energy, healthcare and consumer-oriented sectors and says investments in these stocks could be used as a “source of funding” to invest in financials, IT, utilities and industrials.
In the case of the energy sector, Wells Fargo says,
“We continue to see risks to the downside for oil prices through year-end and believe recent outperformance can provide attractive opportunities to take profits and underweight energy exposure.
Our updated crude oil targets are $10 higher than previously but are still nearly 30% lower than current prices, reflecting our expectations for a lingering geopolitical risk premium to prevent prices from falling to pre-war levels.”
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