U.S. market broadening shifts investor focus beyond AI leaders

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U.S. market broadening beyond AI

Highlights

Strategists from Citigroup and Wells Fargo note the U.S. market rally is broadening beyond AI leaders, with easing Iran tensions supporting gains.
UBS strategist Gerry Fowler highlights the S&P 500 healthcare sector, down over 1% this year, as increasingly attractive due to positive earnings revisions and lower valuations.
Amgen is up 6.3% year to date, while the iShares IGV ETF, down 13% YTD, gained over 14% in Q2 as software stocks rebound.

Broader rally lifts healthcare and software interest

As reported by CNBC, strategists increasingly see the stock market rally spreading beyond the AI names that have dominated since late 2022. That shift leaves investors looking for sectors and stocks that could benefit from a catch-up trade as market participation widens.

Citigroup strategist Scott Chronert says easing tensions between the U.S. and Iran are helping support broader gains. In a note to clients, he says markets are encouraged that the current Iran negotiations have a good chance of success, adding that the broadening trend has already begun.

Wells Fargo strategists also say Wall Street is set for an "everything rally" as cyclical stocks post a catch-up move. Their view adds to the case that investor interest is starting to rotate into areas outside the largest AI-linked companies.

Sector positioning and stock picks

UBS strategist Gerry Fowler highlights healthcare as one area of opportunity even though the S&P 500 healthcare sector is down more than 1% this year. He says the sector is becoming more appealing in the U.S., especially as earnings revisions turn positive and valuations remain relatively cheaper than long-favored AI capital spending beneficiaries.

Among individual names, Fowler points to Amgen as a potential future winner, with the stock up 6.3% year to date. He also identifies Eli Lilly and Cardinal Health as other likely beneficiaries.

Fowler adds that beaten-down growth sectors such as software are also seeing improved earnings revisions, which could support further gains. The iShares Expanded Tech-Software Sector ETF, IGV, is down 13% year to date but is up more than 14% in the second quarter.

Our earlier article on Moderna’s stock move highlighted how FDA briefing documents for the company’s mFlu influenza vaccine were seen as lowering regulatory risk ahead of an advisory committee meeting. We also noted that investors were beginning to revalue Moderna beyond its COVID-19 vaccine legacy, with attention on its broader mRNA pipeline and upcoming Science Day updates that could support further upside.

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