10/14/2024 | News release | Distributed by Public on 10/14/2024 12:09
After information technology and communication services, the bronze medal goes to … utilities? Year to date through 8 October, the S&P 500 is up +22%, with the "Magnificent 7" (Alphabet, Amazon, Apple, Nvidia, Meta, Microsoft and Tesla) contributing close to half of that gain. The information technology (+31.5%) and communication services (+29.4%) sectors have been the two biggest outperformers, though investors may be surprised to learn that the more defensive utilities sector isn't far behind (+28.6%). With utilities having posted positive returns in 10 of the past 12 months, the sector's one-year performance is now more than three standard deviations higher than its rolling one-year return over the past 10 years (Figure 2). We think the utilities rally may be overextended and that other sectors deserve focus.
The health care sector is lagging the overall S&P 500 by 9% year to date, even after several consecutive quarters of strong earnings. Although the healthy health care sector has been largely ignored, it remains one of our favorites, based on its defensive attributes and attractive fundamentals. In the medical technology (medtech) space, which includes medical devices, services and products for patient care and treatment, we favor higher-quality, sustainable growers. Medtech continues to benefit from burgeoning demand for elective procedures that had been delayed by the pandemic. We're also keeping a close watch on the medical tools category (instruments used for prevention, diagnosis or treatment of illness or disease) for its long-term potential. Slow biotech funding has been a headwind for these companies, but the market is beginning to garner interest again.
Although technology and communication services have been riding the wave of artificial intelligence (AI) euphoria for some time, we believe these sectors still have a long runway to outperform the broader market. Companies that supply the building blocks and infrastructure for AI should continue to attract strong demand. Semiconductors in particular will likely remain the primary beneficiary of, and participant in, AI's ongoing growth and evolution.
Software has underperformed in the tech rally, but the headwinds it faces are cyclical, not structural. The more the economy hints at a soft landing, the likelier it is that businesses will expand their IT budgets. This should help software companies grow their enterprise revenue. Lastly, while elevated interest rates have hampered the software industry, the Fed's recently launched easing cycle should turn interest rates into a tailwind.
Nuveen's Global Investment Committee (GIC) brings together the most senior investors from across our platform of core and specialist capabilities, including all public and private markets.
Regular meetings of the GIC lead to published outlooks that offer: