Wells Fargo: Market has not seen a real rotation yet, suggesting to focus on interest rate-sensitive sectors
Wells Fargo believes that the financial markets should remain cautious about the concept of "big rotation", as they think that what is currently happening is an oversold rebound rather than a true market rotation. They suggest investors focus on interest rate-sensitive sectors and reposition defensive investment portfolios to enhance interest rate sensitivity. Wells Fargo believes that the Fed's policy shift and the slowdown in the US economy will put a cap on interest rates and cause them to trend downwards
According to the information from Intelligent Financial News APP, Wells Fargo stated on Friday that the financial market should "put on the brakes" on the idea of the "great rotation", as the bank believes that what is happening is an oversold rebound rather than a market rotation. The bank's stock analyst Christopher Harvey said, "We believe that the 'great rotation' requires lower interest rates and optimistic earnings. The June CPI data is expected to bring lower interest rates, but concerns about earnings persist after Delta Air Lines' financial report was released." "What we are seeing is an oversold rebound, not a market rotation. The best risk/reward seems to be higher interest rate sensitivity."
Wells Fargo added, "If we see the stock market stop falling due to bad news, we will accept the idea of 'rotation'. Currently, we still have concerns about earnings, especially for small and medium-sized stocks."
At the beginning of this year, Wells Fargo advised investors to allocate 60% of their funds to the Communication Services sector (XLC), 30% to the Health Care sector (XLV), and 10% to the Utilities sector (XLU), as this strategy provides participation in the upside and protection on the downside.
Now, Wells Fargo is repositioning its defensive investment portfolio by allocating 20% of funds to both the Health Care sector and the Utilities sector to increase interest rate sensitivity. The bank stated, "We believe that due to the Fed's policy shift and the slowdown in the U.S. economy, interest rates are essentially capped and are declining."