US stock market: RBC upgrades Utilities, downgrades Energy

Published 08/01/2025, 09:32 pm
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Investing.com -- RBC Capital Markets has upgraded the Utilities sector to Overweight from Market Weight, highlighting it as their top defensive sector.

The decision comes after a survey among its US analyst team revealed a strong performance outlook for Utilities, which stood out against all other sectors.

“In the latest set of results, our US Utilities team had the most constructive performance outlook across all US sectors,” RBC strategists said in a note.

The bullish sentiment is also driven by positive earnings per share (EPS) and sales revisions, as well as the sector's resilience to US political debates on taxes and tariffs. Notably, RBC points out that Utilities were one of the best-performing sectors within the S&P 500 in 2018 during the China trade war.

Moreover, its lower sensitivity to fluctuations in the US dollar was also noted as a favorable factor.

On the other hand, RBC downgraded the Energy sector to Market Weight from Overweight. According to the note, the move was partly a strategic one to accommodate the upgrade of Utilities, as RBC prefers to maintain only three sectors with an Overweight rating.

The downgrade also reflects a decline in enthusiasm from RBC's US analysts, as indicated by the latest survey results that showed only a “mildly positive” performance outlook. Additional reasons for the downgrade include challenges with fund flows and weak earnings revisions trends.

“Despite our downgrade, we stress that US Energy feels very much like a sector that should be a market weight, not an underweight,” the investment bank added.

RBC acknowledged recent improvements in the sector's relative performance, driven by renewed geopolitical concerns. The survey also suggested that US analysts see valuation appeal in the Energy sector. Furthermore, the analysts perceive Energy as having more political tailwinds compared to other US sectors, which could be beneficial for the sector.

Alongside these moves, RBC maintained an Overweight rating on Financials and Communication Services.

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