Merrill Lynch Upgrades Tech Sector to Overweight

Merrill Lynch U.S. sector strategist Brian Belski raised his rating on the technology sector to Overweight Friday morning, while downgrading the financial sector to “Tactical Underweight,” and the consumer discretionary group to Underweight.

Belski notes that tech stocks have dramatically underperformed the market for the past several years, but that the sector is outperforming the market year-to-date. He says that in periods of declining aggregate growth, investors should seek areas growing faster than the market - and in this case, he singles out technology. He says tech is growing earnings about 430 basis points faster than the market this year, and is expected to outgrow the broad market by 830 basis points next year.

Belski says tech also is a beneficiary of fast growth in emerging markets.

Another factor: Belski finds that tech stocks have outperformed the market in recent periods with extreme market volatility.

His bottom line take on tech: “Impressive revenue and earnings growth prospects position the sector well within our overall ‘return to growth’ investing theme; international demand remains robust; valuations are attractive and have not moved with performance.”