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Investing.com -- Wolfe Research said on Tuesday that the Technology and Communication Services sectors “will continue to work until a recession hits,” underlining the strength of the AI spending narrative amid ongoing economic uncertainty.
As July’s Consumer Price Index (CPI) report from the Bureau of Labor Statistics (BLS) approaches, Wolfe highlighted the report’s importance in shaping near-term market direction and the Federal Reserve’s reaction.
With two inflation reports and August’s employment data due before the Fed’s September 16-17 meeting, multiple economic and policy scenarios remain possible.
Wolfe’s base case assumes inflation continues to run hotter than expected, driven by accelerating core services excluding housing.
This could prompt the Fed to reduce interest rate cuts compared to market expectations. In this environment, Wolfe favors a “barbell strategy” blending defensives such as Staples and Utilities with cyclicals, notably Tech, Communication Services, and Industrials.
While episodic risk-off events could arise from hotter inflation data, Wolfe emphasizes that “thematically, the AI Spending Narrative continues to come in strong,” benefiting sectors most levered to this trend.
This positioning reflects Wolfe’s view that Tech and Communication Services will remain resilient until recession pressures force a market shift.
The firm believes investors should thus balance exposure across defensive and cyclical sectors, with an eye on upcoming inflation and employment reports that will be “highly influential of the Fed’s reaction function.”