LIVE MARKETS-UBS downgrades communication services, upgrades industrials

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UBS DOWNGRADES COMMUNICATION SERVICES, UPGRADES INDUSTRIALS

UBS has downgraded its view on the U.S. communication services sector from "attractive" to "neutral," noting the aggressive pace of capital spending, while it has upgraded its view of industrials to "attractive" from "neutral."

UBS' chief investment office also recently downgraded the S&P 500 information technology sector to "neutral" from "attractive."

For communication services, UBS says in a note this week that aggressive capital spending means that artificial-intelligence model developers are in a competitive environment to win market share.

"This is a crowded field and at this early stage of development, it is not clear who the leaders will be when the dust settles," UBS strategists write.

At the same time, they say that they are "not overly concerned about the impact of slowing data center capex growth on power supply chain companies."

"We believe the power and resources opportunity remains both attractive and broader than just supplying power to AI," they note.

For its upgrade of industrials, UBS cites the sector’s exposure to stable growth, including growth related to electrification, U.S. re-industrialization and aerospace demand.

"But we also see a potential pickup in more cyclical segments like transportation. The recent increase in the ISM Manufacturing Index is encouraging and suggests manufacturing may finally be improving after
three years of sluggish demand. This should lead to solid earnings growth."

The S&P 500 industrials sector .SPLRCI is up 0.7% on Thursday and on track for another record closing high. The sector is up about 14% for the year to date, while the S&P 500 communication services sector .SPLRCL is up about 0.3% on Thursday but down 2.5% for the year so far.

UBS says overall it holds an attractive view of the U.S. stock market and maintains a year-end S&P 500 .SPX target of 7,700. The index was last at about 6,848.

(Caroline Valetkevitch)

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