As markets (^DJI, ^IXIC, ^GSPC) face pressure following semiconductor giant Nvidia's (NVDA) reversal of rally gains, Wells Fargo Investment Institute senior global market strategist Scott Wren joins Morning Brief to offer his insights.

Wren observes that the computer services and technology sectors are currently "very highly valued, very momentum driven." He advises investors to consider trimming some of their gains in these areas and reallocating into sectors he views as "undervalued," such as industrials, energy, and healthcare. However, he urges patience, noting that "picking the top in any run is difficult."

Addressing the AI boom, Wren highlights the potential of companies within the industrials and materials sectors, which he believes will be instrumental in building out the necessary infrastructure. "Those two sectors play out with those themes," he explains. "But I think overall you need to think about the economy," Wren told Yahoo Finance, adding: "So I think right now you want to position for... what might happen after this slowdown."

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Angel Smith

Video Transcript

The S and P 500 the NASDAQ point back from record highs.

The video driven rally taken a bit of a breather here.

Our next guest says it might be time for investors to rebalance their portfolios amid all the tech concentration.

Scott R, Wells Fargo Investment Institute Senior global market strategist, joins us now.

Scott, Great to have you with us.

Thank you so much for being here.

Look, in your note.

You say the thing that makes us all set up.

It's time to trim Tech and Cal services to neutral ratings as the S and P 500 is making new highs and investors should rebalance.

Why now for that call?

Why not just enjoy the tech gains of it all for another six months or so?

Well, Ma, you're right, and and you know, if you could pick the top and a moment of market before you have a halfway decent correction, it would make it a lot easier.

But I think right now is what we're trying to do is we think those two sectors that you mentioned com services and tech very highly valued, very momentum driven and what we want to try to do is trim some of those gains and buy things like industrials and materials energy.

We've also been buying a little bit of health care, so we think those sectors are undervalued.

The other ones are overvalued.

You know, we'd be very hesitant to just go out and buy the S and P 500.

But I think you have to look under the hood and do a little bit of work under the hood.

And a lot of this is you know, you need to be patient and you need to realise that, you know, picking the top in any particular run is always difficult.

You know, we want to be invested here.

The market, we think, will be higher than where we are right now at the end of 2025.

But we think we'll probably have a bumpy road that will provide some opportunities and equities between now and then.

Scott big themes are typically easy for investors to try and wrap their minds around what the runway might look like, and that theme has largely been a I to this point and generative a I what what is, though?

If we were to see some type of rotation or profit taking even and spreading the chips around elsewhere.

What are other comfortable themes that investors can be comfortable with for a long term time horizon?

Right now?

Well, you know, Brad, I think one thing you want to point out is that you know, industrials and material.

You know, all this A. I build out whether it's data centres, updates to the electrical grid, all those kinds of things.

You know, the companies that are going to be building those are in the industrial sector and certainly there's going to be a lot of copper and other types of industrial metals used, which is in the material sector.

So you know, those two sectors play out with those themes.

But I think overall, you know, you need to think about the economy here, probably for the next few quarters.

34 quarters.

You're going to see sub 2% growth in GDP.

Somewhere between 1% and a half and 2% inflation is going to come down, but it's going to take a little bit of time.

So I think right now you want to position for what might or start to position for what might happen after this slowdown.

I think you're going to see the second half of 2025 be be better, be better globally.

I think you'll finally see these developed international markets.

Maybe emerging markets start to do better, but the US is going to lead the charge.

So I think for now you still want to be overweight U relative to industrials.

You still want to play the large cap theme?

You know, we've been underweight small cap stocks, the Russell 2000 for a couple of years.

I think that still has a ways to go.

So I think right now you want to just make some moves around the edges.

You want to be a little cautious here, but you want to have a plan.

Because when the pullback occurs and and and you know I'll say, you know, right up front that you know, we thought we'd see another 10% pull back, uh, by now, and it hasn't happened.

But it's going to happen at some point.

You need to have a plan.

A lot of investors, retail investors have cash on the sidelines.

You need to know what you want to buy.

And then, of course, when you see a 10% pull back, you have to do the hardest thing.

Uh uh, for most retail investors is just to kind of hold their nose and stick their toe in and execute the plan.

So we're trying to be patient here.

We think you'll have a opportunity at higher rates, a higher 10 year yield to to to buy some longer duration bonds.

We also think you'll have an opportunity to buy stocks at lower levels.

Scott.

What causes the 10% decline in the market?

Well, Mandy, I think it's gonna continue to revolve around, um, is inflation going to come off fast enough for the Federal Reserve to cut?

We're only looking for two cuts this year, and I'm telling you, if we're wrong, I think it's going to be fewer cuts, not more.

We're only looking for one cut next year, which, of course, the feds the median dot was at four.

So I think it's going to revolve around inflation staying higher for longer, and then at some point, you know consumers are starting to back here.

We think that will happen more as the economy slows.

So I think it will be a combination of higher inflation and a slower economy that will spook, spook a few people and cause a little bit of money to come out of the market and give you that opportunity.

Scott, with the opportunities we love it.

Scott Wren, Wells Fargo Investment Institute, senior global market strategist.

Thanks for joining us here on this Friday.

Scott.

Great to see you.

Have a have a great weekend, guys.

Thank you.