Wells Fargo downgrades tech, citing high expectations and debt levels

Investing.com -- Wells Fargo downgraded its guidance on the information technology sector to neutral from favorable in a note Tuesday, pointing to elevated expectations and rising debt-funded investment.

The firm said technology's "strong gains, elevated expectations, and increased debt-funded investment have balanced its risk-reward outlook."

At the same time, Wells Fargo upgraded industrials to favorable from neutral. It cited the sector's recent pullback and lasting demand from AI infrastructure, power, defense, reshoring and aerospace.

In fixed income, it raised leveraged loans to neutral from unfavorable, noting their floating-rate income, lower volatility and limited sensitivity to interest rates.

The changes come alongside revised 2027 forecasts. Wells Fargo now expects the Federal Reserve to raise rates more aggressively as geopolitical risk and business technology spending add to inflation pressure.

It raised its 2027 federal funds rate target and expects higher 10- and 30-year Treasury yields by the end of that year.

"This combination should slow (but not derail) global economic growth," the firm wrote. The bank kept its inflation target at 3.0%, but lowered its growth expectations and cut its 2027 unemployment target because of structural limits on labor force growth.

Wells Fargo said business technology spending remains a strong driver of U.S. growth, but it expects higher borrowing costs, weaker purchasing power, elevated fuel costs and fading fiscal support to slow that pace.

The firm raised its year-end 2027 crude oil target on supply risks and expected inventory rebuilding. It trimmed its gold target, citing tighter monetary policy and a stronger dollar, though it still expects gold's uptrend to continue.

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