Rotation out of tech stocks is ‘quite healthy’ despite AI sentiment swings – analyst

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The current sector rotation away from technology stocks (VGT [https://seekingalpha.com/symbol/VGT]), (XLK [https://seekingalpha.com/symbol/XLK]), (IYW [https://seekingalpha.com/symbol/IYW]) toward materials (XLB [https://seekingalpha.com/symbol/XLB]), (VAW [https://seekingalpha.com/symbol/VAW]), (IYM [https://seekingalpha.com/symbol/IYM]), industrials (XLI [https://seekingalpha.com/symbol/XLI]), (VIS [https://seekingalpha.com/symbol/VIS]), (FXR [https://seekingalpha.com/symbol/FXR]), and staples (XLP [https://seekingalpha.com/symbol/XLP]), (VDC [https://seekingalpha.com/symbol/VDC]), (IYK [https://seekingalpha.com/symbol/IYK]) is “actually quite healthy” for the broader market, according to Marc Dizard, chief investment officer at Huntington Bank.

While no company is immune to the volatility caused by shifting AI sentiment, Dizard sees opportunities emerging from what he describes as “indiscriminate selling” in some of the market’s biggest names.

In an interview with CNBC, Dizard outlined a constructive macroeconomic backdrop that he believes supports continued market strength.

“You’ve got inflation that’s coming down—likely to continue coming down. You have a Federal Reserve that is likely to start cutting interest rates again somewhere around mid-year. You have a labor market that’s solid, and you have GDP that’s surprising to the upside,” he said. “That’s a pretty healthy market backdrop, so you could actually see this reacceleration within the cycle itself.”

Dizard acknowledged what he called the “revenge economy,” where investors are pivoting toward tangible products and old economy stocks perceived as insulated from AI disruption.

However, he cautioned investors against abandoning growth-oriented tech names entirely.

“We’d be cautious for investors not to get whipsawed and move all into that sector rotation,” Dizard warned, noting that some companies growing at only 3%-4% are now trading at higher valuations than firms with double-digit earnings growth expectations.

The massive capital expenditure plans from major technology companies remain a key driver for the broader market, according to Dizard.

He noted that Amazon (AMZN [https://seekingalpha.com/symbol/AMZN]), Microsoft (MSFT [https://seekingalpha.com/symbol/MSFT]), and Meta (META [https://seekingalpha.com/symbol/META]) are expected to spend nearly $1T in capex this year.

“Because of that spend, that’s going to drive other earnings growth for other companies,” he explained, pointing to beneficiaries like Texas Instruments (TXN [https://seekingalpha.com/symbol/TXN]) and Corning (GLW [https://seekingalpha.com/symbol/GLW]).

On individual stocks, Dizard expressed confidence in “durable” names like Walmart (WMT [https://seekingalpha.com/symbol/WMT]) and Caterpillar (CAT [https://seekingalpha.com/symbol/CAT]) despite elevated valuations. He cited Walmart’s (WMT [https://seekingalpha.com/symbol/WMT]) digital advertising business and Caterpillar’s (CAT [https://seekingalpha.com/symbol/CAT]) construction and mining backlogs as reasons for optimism.

For tech giants like Microsoft (MSFT [https://seekingalpha.com/symbol/MSFT]), Dizard sees attractive valuations following the recent pullback.

Despite the uncertainty surrounding AI profitability, Dizard emphasized the importance of maintaining a balanced approach.

“We believe in diversified portfolios. That’s a healthy thing,” he said, suggesting that a rotation back into tech names could catch overly defensive investors off guard.

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