RBC Upgrades Technology to Overweight, Downgrades Utilities in S&P 500 Sector Shift

RBC Capital Markets has executed a significant shift in its S&P 500 sector strategy, upgrading the heavily-weighted Technology sector to overweight while downgrading the defensive Utilities sector to underweight. The changes, announced on July 13, position Technology as the firm's preferred growth-oriented sector for the second half of 2026.

Key Rating Changes

The firm's strategists detailed a series of adjustments based on earnings trends, valuations, and fund flows. The primary changes include:

• Technology: Upgraded to Overweight.
• Consumer Discretionary: Upgraded to Market Weight from Underweight.
• Communication Services: Downgraded to Market Weight from Overweight.
• Utilities: Downgraded to Underweight.

Rationale Behind the Shift

The upgrade for Technology is partly a function of its sheer size, with Strategist Lori Calvasina noting that it's "difficult to be constructive on the S&P 500 in the year ahead without taking a constructive view on it," given the sector comprises over a third of the index. RBC also cited strong upward revisions for earnings per share (EPS) and revenue, recovering fund inflows, and a positive outlook from its analysts. While valuations are not low, the firm described them as "only slightly above the long-term average."

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In contrast, the downgrade of Utilities to underweight was attributed to the sector being "one of the most expensive sectors in the S&P 500." RBC also pointed to weak recent fund flows and a neutral performance outlook from its analysts as reasons for the more cautious stance.

Other moves included lifting Consumer Discretionary to market weight, as sentiment survey data shows "some signs of attempted stabilization." Communication Services was lowered to market weight after weakness emerged in its EPS revision trends.

Market Outlook

Despite the sector-level adjustments, RBC Capital Markets maintained its 12-month price target for the S&P 500 at 8,150. The firm stated it is "on guard for a shift back into traditional mega cap Growth leadership," a view that aligns with its new overweight rating on the Technology sector.