Sectors Portfolio: All Time Highs
Strong earnings continue to power equities higher, but sector leadership is shifting beneath the surface of the rally.
- US equities are reaching record highs, and this rally is not being carried by optimism alone. Q1 results have come in strong enough to validate the move— earnings delivery has remained strong and beat rates are running well above historical averages, reinforcing the idea that this market is still being driven by fundamentals rather than headlines.
- Energy continues to outperform even as prompt crude prices have pulled back from their highs, which in our view tells us the market is still rewarding the sector’s earnings leverage and valuation support. Forward earnings expectations remain among the strongest across sectors (Chart 2), but a good part of that strength is now reflected in the price. In other words, Energy still works we believe if inflation risk or supply tightness re-emerges, but the setup continues to be headline sensitive.
- Tech remains the market’s earnings engine. Q1 results reinforced that fundamentals remain very strong, with the best earnings growth and continued upward revisions. Valuations have become attractive over the past quarter and remain below long‑term averages which offers an attractive setup alongside resilient AI‑driven demand.
- Communications looks less compelling as the revision trend deteriorates. Unlike Tech, this is a sector where earnings expectations have moved lower while valuations remain stretched, leaving less support for the multiple if growth disappoints. In a market that is getting more selective, that combination argues for caution.
- The better opportunities are in sectors where valuation still gives us room to be constructive. Financials have lagged year‑to‑date, but valuations remain among the most attractive across sectors. Health Care offers a more defensive source of earnings growth at a reasonable price, which matters in a market where visibility is becoming more valuable. Materials adds cyclical upside if global growth stabilizes and stickier inflation supports pricing power.
- For the portfolio, we are making the following changes:
- Tech: Our position is still neutral, but weight is slightly higher than last month to be in line with index weight.
- Financials: Our position is still neutral, but weight is slightly lower than last month to be in line with index weight.
- Communications: Our position is still underweight. We are trimming our weight relative to last month.
- Industrials: Our position is still overweight. We are trimming our weight relative to last month.
- Utilities: Our position is still neutral, but weight is slightly higher than last month.
Sectors in focus:
Technology (BMO SPDR Technology Select Sector Index ETF – ZXLK)
Please see Chart 3 below for the monthly performance and refer to Chart 4 for the monthly tactical changes in the model BMO Sector Model Portfolio.
Chart 1 – Sector Performance Chart
Chart 2 – Earnings and Valuation
| Earnings | Forward P/E | ||||
| Expected (Y/Y%) | Last Month | Change (%) | Next 12m | Z-Score | |
| S&P 500 | 19.73% | 19.18% | 0.55% | 21.54 | 0.38 |
| Tech | 50.48% | 44.95% | 5.53% | 27.35 | 0.04 |
| Communications | 6.37% | 3.58% | 2.79% | 21.64 | 1.25 |
| Financials | 2.50% | 7.09% | -4.59% | 15.22 | 0.09 |
| Utilities | 9.23% | 11.30% | -2.07% | 18.02 | -0.23 |
| Real Estate | -1.29% | -1.11% | -0.18% | 38.09 | -0.26 |
| Discretionary | 3.78% | 7.41% | -3.62% | 27.12 | 0.24 |
| Energy | 80.82% | 48.32% | 32.50% | 11.60 | -0.49 |
| Industrials | 8.91% | 6.73% | 2.17% | 26.08 | 1.31 |
| Healthcare | 8.30% | 4.82% | 3.48% | 17.76 | 0.08 |
| Staples | 6.13% | 4.14% | 1.99% | 21.82 | 0.57 |
| Materials | 29.68% | 35.78% | -6.11% | 17.80 | -0.32 |
*As of May 28th, 2026
Source: Bloomberg, BMO GAM. Z-Score is a measure of how much a data point varies from the average of the entire data set. A positive z-score says the data point is above average. A negative z-score says the data point is below average. The closer the Z-score is to zero, the closer the value is to the mean. Red = more bearish signal. Green = more bullish signal. For illustrative purposes only. Past performance is not indicative of future returns.
Chart 3 – BMO Sector Model Portfolio Performance in 2026
Chart 4 – BMO Sector ETF Portfolio for June 2026
| Index | Sector Portfolio | Difference | Weighting | Change from Last Month | |
| S&P 500 | 100.00% | 100.00% | |||
| Tech | 37.40% | 37.00% | -0.40% | Neutral | 2.0% |
| Financials | 11.54% | 12.50% | 0.96% | Neutral | -0.5% |
| Comms. | 10.54% | 9.00% | -1.54% | Underweight | -1.0% |
| Health care | 8.45% | 10.50% | 2.05% | Overweight | 0.0% |
| Disc. | 9.72% | 7.00% | -2.72% | Underweight | 0.0% |
| Industrials | 8.35% | 9.00% | 0.65% | Neutral | -1.0% |
| Energy | 3.36% | 3.50% | 0.14% | Neutral | 0.0% |
| Materials | 1.84% | 4.00% | 2.16% | Overweight | 0.0% |
| Utilities | 2.18% | 2.50% | 0.32% | Neutral | 0.5% |
| Real estate | 1.86% | 2.00% | 0.14% | Neutral | 0.0% |
| Staples | 4.76% | 3.00% | -1.76% | Underweight | 0.0% |
Source: BMO Global Asset Management. As of May 28th, 2026.
Chart 5 – BMO Sector ETF Portfolio Weights Relative to S&P 500
Chart 6 – Sector Returns
| Returns (%) | |||||||
| Index | 50-day MAVG* | 100-day MAVG* | 5-day | Month-to-Date | Quarter-to-Date | Year-to-Date | |
| S&P 500 | 7580.8 | 7077.1 | 6966.3 | 1.4% | 5.2% | 16.1% | 10.7% |
| Tech | 6997.9 | 6015.1 | 5754.6 | 4.2% | 15.5% | 35.7% | 23.1% |
| Communications | 494.5 | 471.2 | 462.0 | 0.2% | -0.6% | 17.7% | 9.3% |
| Financials | 859.3 | 849.6 | 857.6 | -0.4% | -0.9% | 4.5% | -5.7% |
| Utilities | 448.3 | 463.1 | 460.0 | -2.4% | -5.8% | -3.9% | 3.3% |
| Real Estate | 279.3 | 274.8 | 271.5 | -1.3% | -1.1% | 7.4% | 9.5% |
| Discretionary | 2010.2 | 1896.6 | 1889.3 | 1.9% | 2.9% | 15.0% | 4.2% |
| Energy | 856.1 | 892.5 | 855.6 | -5.3% | -5.9% | -9.2% | 24.6% |
| Industrials | 1464.9 | 1440.1 | 1438.0 | 0.9% | -0.9% | 7.0% | 11.6% |
| Healthcare | 1737.9 | 1706.9 | 1757.5 | -0.4% | 2.2% | 1.6% | -3.8% |
| Staples | 923.1 | 937.9 | 945.5 | -3.1% | -3.1% | -0.3% | 6.7% |
| Materials | 641.5 | 639.6 | 639.7 | 1.6% | -0.4% | 2.2% | 11.7% |
Source: Bloomberg, BMO Global Asset Management. As of May 28th, 2026.
Chart 7 – Seasonality Chart (Avg Rank Over Past 35 Years)
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This material is for information purposes only. The information contained herein is not, and should not be construed as investment, tax or legal advice to any party. Particular investments and/or trading strategies should be evaluated and professional advice should be obtained with respect to any circumstance.
The viewpoints expressed represent the assessment of the markets at the time of publication. Those views are subject to change without notice at any time. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. This communication is intended for informational purposes only.
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