Discover why it’s time to pivot from tech to reliable investments.

  • BofA Securities’ Regime Indicator shifted from Upturn to Downturn.
  • Utilities have outperformed tech stocks since June, with a 12% return compared to tech’s 4%.
  • BofA suggests it’s not too late to take profits from tech and invest in utilities and REITs.
  • Utilities offer stability and dividends, with a historical return of 11% per year.
  • REITs are seen as undervalued and have performed well since summer.
  • Energy sector is viewed as a ‘value trap’ due to potential oil glut.
  • BofA favors banks and consumer discretionary companies for steady earnings.
  • A shortage of U.S. data centers is expected, increasing demand for power.
  • Companies like Amazon are making strategic power deals with energy providers.
  • Crypto mining operations may provide a temporary solution for power shortages.

The stock market strategists at BofA Securities recently noted a significant shift in their cycle model, moving from Upturn to Downturn. This caught my attention, even though my own investment strategy, Tactical Sloth, typically ignores market cycles. While some investors are excited about swapping sectors, particularly moving from tech to utilities, the data suggests this might be a wise move. Since the end of June, the iShares U.S. Utilities ETF has returned 12%, while the iShares U.S. Technology ETF has dropped 4%. For those holding S&P 500 funds, the overall performance has been positive, but the question remains: is it too late to cash in on tech profits and invest in more stable options? According to BofA, it’s not too late. They argue that tech stocks are currently ‘egregiously expensive’ and while earnings growth is still impressive, it is slowing down. The S&P 500 is heavily concentrated, with major players like Apple and Microsoft making up over a quarter of the index, which raises concerns about volatility in the future. Investors are advised to seek quality, stability, and income, especially as dividends are expected to contribute more significantly to returns in the coming years. Utilities, with their average dividend yield of nearly 3%, are seen as a solid choice, especially since they have historically returned around 11% annually, comparable to the Nasdaq. Additionally, the demand for power is surging due to the rise of AI data centers, making utilities quiet beneficiaries in this tech-driven landscape. Real estate investment trusts (REITs) are also recommended, as they appear undervalued and have performed well recently. However, the energy sector is viewed as a potential ‘value trap’ due to the risk of an oil surplus. While consumer staples and healthcare might seem like safe bets, BofA is cautious about these sectors, favoring banks and consumer discretionary companies instead. In a related note, a shortage of data centers in the U.S. is anticipated, which could lead to increased demand for power. Companies like Amazon are already making strategic power deals to secure their operations. Interestingly, crypto mining operations may also play a role in alleviating power shortages, as they can offer quicker access to power connections compared to traditional data centers. Overall, the investment landscape is shifting, and now may be the time to consider reallocating funds towards more stable and dividend-paying sectors.·

Factuality Level: 6
Factuality Justification: The article presents a mix of factual information and personal opinions, particularly regarding market strategies and investment recommendations. While it references credible sources like BofA Securities and includes relevant data, it also contains subjective interpretations and speculative statements about market trends and individual stocks. The overall structure is somewhat convoluted, with tangential discussions that may distract from the main points.·
Noise Level: 7
Noise Justification: The article provides a detailed analysis of market trends and investment strategies, particularly focusing on utilities and data centers in the context of AI demand. It includes insights from industry experts and supports claims with data and examples. However, it occasionally diverges into less relevant discussions about crypto mining and the broader implications of market cycles, which detracts slightly from its overall focus.·
Public Companies: Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA), Alphabet (GOOGL), Amazon.com (AMZN), Talen Energy (TLN), Constellation Energy (CEG), Vistra (VST), Core Scientific (CORZ), CoreWeave (), Cipher Mining (CIFR), BitDeer Technologies (), Applied Digital (), Hut 8 (), First Solar (FSLR), GE Vernova ()
Private Companies: Morgan Stanley
Key People: Stephen Byrd (Head of Sustainability Research at Morgan Stanley)

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Financial Relevance: Yes
Financial Markets Impacted: The article discusses the shift from Upturn to Downturn in market cycles, impacting sectors such as technology, utilities, real estate, energy, consumer staples, and healthcare. It also mentions potential opportunities in banks, consumer discretionary companies, and crypto mining firms.
Financial Rating Justification: The article discusses various financial topics including stock market cycles, sector performance, investment strategies, and the impact of AI data centers on power demand and related industries.
Presence Of Extreme Event: No
Nature Of Extreme Event: No
Impact Rating Of The Extreme Event: No
Extreme Rating Justification: The article discusses market trends and investment strategies but does not report on any extreme event that occurred in the last 48 hours.·
Move Size: No market move size mentioned.
Sector: Technology
Direction: Down
Magnitude: Medium
Affected Instruments: Stocks

Reported publicly: www.barrons.com