U.S. stocks received a bit of a boost on Monday as the U.S. initiated its blockade of the Strait of Hormuz, but while some analysts expect energy prices to stay high for months (or potentially years) due to the fallout of the Iran War, analysts at Wells Fargo believe it’s time to invest in alternatives.
Wells Fargo Investment Institute sent out an alert Monday updating its stance based on the latest news from Iran, including the failed ceasefire talks over the weekend and the blockade of the Strait.
The S&P 500 Energy sector has gained over 29% year to date, driven by oil price spikes due to the war. Meanwhile, the S&P Information Tech sector is down 4%, underperforming the broader S&P by nearly 4% ytd.
“We expect the energy sector to reverse at least some gains. The West Texas Intermediate crude oil futures market currently prices the peak oil price in May, which may be closer than many investors expect,” Wells Fargo analysts Paul Christopher and Michelle Wan said in their note.
As of April 13, the average price of a gallon of regular unleaded is $4.125, up from $3.63 per gallon when we were just weeks into the conflict, and significantly more than $3.189 a year ago, according to AAA.
But the firm’s move into tech seems to be as much about declines in energy as it is about potential gains in the tech sector.
Investors should ditch energy for information technology, Wells Fargo says
Not only is the energy sector overbought after a nearly 30% year-to-date gain, but the tech sector is also oversold, down 4%.
Also, while the tech sector is trading at the same price-to-earnings multiple as the composite S&P 500 Index, the Bloomberg consensus for 2026 tech sector growth is 35% as of April 9, nearly twice that of the 18% for the S&P, according to Wells Fargo.
“Thus, we see a tech sector that is completely priced against the S&P 500 but with roughly twice the projected earnings growth. By contrast, we expect the energy sector to reverse at least some against,” Christopher and Wan said.
The firm also sees an opportunity to rotate from energy into other sectors like financials, industrials, and utilities in addition to information technology.
For financials, “even though we removed our expectations of two Federal Reserve rate cuts by year’s end, we still anticipate higher long-term yields from current levels.”
For commodities, the spot gold price is down by more than 10% from its January peak, offering investors a golden buying opportunity.
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“International buyers figured prominently in the selloff, shedding gold and other assets to raise dollars to afford oil at rising dollar-denominated prices. As we pointed out in a recent report, the forced selling of gold creates tighter cash positions internationally, as oil prices rise and the U.S. dollar strengthens. From this, we see a potential opportunity for investors to reallocate from crude oil into gold,” the analysts said.
The firm says its 2026 price target range midpoint for gold is $5,900 per troy ounce with an expected downside of $4,700. Gold spot prices were at $4,757 per troy ounce on Monday.
Tech sector is in a generational funk not seen since the 1970s
While Wells Fargo analysts see the tech sector’s underperformance as a nice hedging opportunity, Goldman Sachs analysts are lamenting one of the weakest periods of relative returns in the sector in 50 years.
According to Goldman analyst Peter Oppenheimer, the tech sector has had one of the worst periods of relative underperformance since the early 1970s, since the decline started in early 2025 following the release of the moat-destroying AI model DeepSeek.
Oppenheimer warns that the return on artificial intelligence spending isn’t a foregone conclusion as the history of technology “is littered with examples of new technologies that attracted large sums of capital to build out underlying infrastructure, which have led, ultimately, to low returns.”
Goldman analysts also expect the information technology sector to see earnings per share increase 44% and account for 87% of the S&P 500s growth in the first quarter of 2026. At the same time, the information tech sector’s price-to-earnings ratio has fallen below that of consumer discretionary, consumer staples, and industrials, which Goldman Sachs says creates attractive valuation opportunities, according to Seeking Alpha.
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