Wells Fargo Downgrades Tech Sector to Neutral After Nearly 33% Gain
The move follows stronger expectations, rising debt-funded infrastructure investment and forecasts for more aggressive Federal Reserve rate increases.
On Sept. 29, Wells Fargo Investment Institute shifted its rating on the S&P 500 technology sector to neutral from favorable after a nearly 33% advance increased the risks posed by elevated expectations and higher financing costs.
The S&P 500 Information Technology Index advanced nearly 33% from April 6 through Sept. 17, outperforming the broader S&P 500 by more than 15 percentage points. The advance came alongside increasingly debt-funded investment in large infrastructure investments.
The rating change reflects a less attractive balance between potential returns and risk rather than an expectation that technology or artificial-intelligence spending will stop. AI-related demand may continue to support above-market sales and earnings growth, but stronger expectations have raised the bar for further gains.
Wells Fargo also upgraded Industrials from neutral to favorable. The outlook points to demand connected to AI infrastructure, power, defense, reshoring, aerospace and manufacturing.
The institute revised its 2027 forecasts to account for more aggressive Federal Reserve rate increases, higher 10-year and 30-year Treasury yields and slower global economic growth. It kept a 3.0% inflation target for 2027 while lowering its growth expectations and reducing its unemployment target.
The revised assumptions are expected to slow global economic growth without derailing it.
