LIVE MARKETS-Tariffs, Tension, and Tactical Tweaks: RBC revises US sector script

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TARIFFS, TENSION, AND TACTICAL TWEAKS: RBC REVISES US SECTOR SCRIPT

RBC Capital Markets has reshuffled its U.S. sector recommendations mid-year, upgrading materials and REITs while downgrading consumer discretionary and communication services.

The changes come amid cautious optimism on market performance and growing concern over the policy landscape, particularly trade.

"Analysts are constructive on forward performance and valuations,...but views on the U.S. policy backdrop remain tilted negative," the Canadian brokerage said.

RBC analysts flagged tariffs as the top policy concern, warning of ripple effects across consumer and industrial sectors.

Apparel and footwear companies sourcing from Asia are particularly exposed, with some already seeing rising landed costs and weaker U.S. demand.

Meanwhile, RBC lifted its materials' recommendation to 'overweight' from 'market weight', buoyed by attractive valuations and a rebound in earnings revisions.

"It’s a better alternative to the extremely expensive Industrials sector," RBC said, especially if trade tensions ease and the dollar stays soft.

REITs and consumer staples were both bumped up to 'market weight' from 'underweight.'

On the flip side, consumer discretionary was downgraded to 'underweight' from 'market weight,' with RBC citing "one of the most pessimistic views on forward performance" and a sector highly vulnerable to policy shocks.

While the outlook for U.S. equities remains broadly positive, RBC warns that volatility could return.

"We see staples and REITs as the best ways to get defensive when conditions get too frothy again," analysts said.

RBC also cut the communication services sector and utilities sector to 'market weight' from 'overweight.'

(Rashika Singh)

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