LIVE MARKETS-RBC spreads holiday cheer: Overweight treats for health care & comm services

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RBC SPREADS HOLIDAY CHEER: OVERWEIGHT TREATS FOR HEALTH CARE & COMM SERVICE

RBC Capital Markets upgraded its ratings on both the S&P 500 health care and communication services sectors to 'overweight' from 'market weight', betting on compelling valuations and robust earnings momentum as investor interest shifts toward value plays.

The Canadian brokerage said its call reflects "quite strong" earnings per share (EPS) and revenue revisions, with flows into global health care funds making a decisive shift into positive territory.

"Valuations continue to look compelling relative to the broader market and are still quite reasonable in absolute terms relative to their own history," RBC analysts said in the note.

Health care's appeal spans pharmaceuticals, biotechnology, health care technology, and equipment suppliers, with RBC's U.S. team bullish on biotech, health care service providers, and medical supplies & devices.

RBC sees the managed care group as neutral. The sector has recently been the top S&P 500 performer, outpacing technology as investors seek new leadership.

For communication services, RBC analysts described "one of the strongest demand backdrops among the major sectors," highlighting interactive media & services and diversified telecom for attractive valuations and positive revision trends.

RBC's other S&P 500 sector recommendations remain unchanged, with overweight calls on financials and materials, underweight on consumer discretionary, and market weight on consumer staples, energy, real estate investment trusts (REITs), industrials, information technology, and utilities.

Supporting this sector rotation narrative, Citigroup's latest U.S. Equity Strategy note highlights a similar shift: "Our overweight calls headed into Q1 include Info Technology, Financials (via Banks), and Health Care. This implies a balanced approach to each of growth, cyclicals, and defensives, while aligning with the broadening theme we advocate for '26."

Investors have shown increased interest in sectors seen as undervalued, with RBC flagging a potential rotation away from early artificial intelligence (AI) trade beneficiaries as 2026 approaches.

(Akriti Shah)

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