Sectors Portfolio: Fundamentals over Volatility
- Q1 2026 earnings season has been off to a strong start. As of Monday (April 27), nearly 30% of the S&P 500 companies have reported, with roughly 80% beating expectations. Despite persistent macro noise, markets are increasingly rewarding earnings delivery rather than reacting to headlines, pushing equities to record highs in April.
- Tech continues to lead on year‑over‑year earnings expectations (Chart 2). Valuations have reset over the past quarter and remain below long‑term averages which offers an attractive setup alongside resilient AI‑driven demand. Fundamentals, not momentum alone, are underpinning the sector’s attractiveness.
- As anticipated, energy has been the best performing sector year-to-date (YTD). This sector has also posted the largest upward revision to earnings expectations this month. Leadership looks fundamentally supported near term but remains headline‑dependent rather than structurally durable.
- Materials stand out as the clearest example of fundamentals overpowering volatility. Q1 earnings reinforced an already improving outlook, with strong year‑over‑year growth, upward revisions, and reasonable valuations. We remain constructive as earnings momentum broadens.
- Financials have lagged YTD, but valuations remain among the most attractive across sectors. More than 50% of the sector has reported Q1 earnings, and results have confirmed that the credit channel is healthy, with provisions moving lower and delinquency trends stable. As a result, performance in April has improved significantly, with the sector up +4.9% month-to-date.
- Defensives have been a mixed bag. Utilities have delivered steady Q1 earnings, supporting double‑digit growth expectations and positive year‑to‑date returns, with valuations near historical norms. Staples, by contrast, have seen earnings expectations revised lower this quarter while trading at elevated valuations.
- 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.
- Healthcare: Our position is still overweight. We are trimming our weight relative to last month.
- Industrials: Our position is still overweight. We are trimming our weight relative to last month.
Sectors in focus:
Technology (BMO SPDR Technology Select Sector Index ETF – ZXLK)
Please see Chart 3 below for the monthly tactical changes in the model BMO Sector ETF 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 | 18.75% | 17.14% | 1.62% | 21.69 | 0.43 |
| Tech | 44.22% | 42.47% | 1.75% | 24.70 | -0.69 |
| Communications | 11.96% | 11.15% | 0.81% | 22.03 | 1.38 |
| Financials | 7.12% | 6.62% | 0.49% | 15.44 | 0.23 |
| Utilities | 10.57% | 10.79% | -0.22% | 19.12 | 0.51 |
| Real Estate | 1.64% | 1.16% | 0.48% | 37.98 | -0.30 |
| Discretionary | 6.31% | 6.99% | -0.68% | 27.26 | 0.21 |
| Energy | 49.18% | 24.51% | 24.68% | 14.46 | 0.16 |
| Industrials | 6.31% | 6.29% | 0.02% | 26.63 | 1.46 |
| Healthcare | 4.89% | 5.50% | -0.61% | 17.49 | -0.14 |
| Staples | 4.02% | 4.77% | -0.74% | 22.84 | 1.54 |
| Materials | 36.41% | 28.92% | 7.49% | 18.94 | 0.10 |
*As of April 27th, 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 ETF Portfolio for May 2026
| Index | Sector Portfolio | Difference | Weighting | Change from Last Month | |
| S&P 500 | 100.00% | 100.00% | |||
| Tech | 35.79% | 35.00% | -0.79% | Neutral | 2.00% |
| Financials | 12.01% | 13.00% | 0.99% | Neutral | 0.00% |
| Comms. | 10.70% | 10.00% | -0.70% | Neutral | 0.00% |
| Health care | 8.39% | 10.50% | 2.11% | Overweight | -1.00% |
| Disc. | 9.96% | 7.00% | -2.96% | Underweight | 0.00% |
| Industrials | 8.75% | 10.00% | 1.25% | Overweight | -1.00% |
| Energy | 3.36% | 3.50% | 0.14% | Neutral | 0.00% |
| Materials | 1.98% | 4.00% | 2.02% | Overweight | 0.00% |
| Utilities | 2.33% | 2.00% | -0.33% | Neutral | 0.00% |
| Real estate | 1.89% | 2.00% | 0.11% | Neutral | 0.00% |
| Staples | 4.85% | 3.00% | -1.85% | Underweight | 0.00% |
Source: BMO GAM (as of April 27th, 2026)
Chart 4 – BMO Sector ETF Portfolio Weights Relative to S&P 500
Chart 5 – Sector Returns
| Returns (%) | |||||||
| Index | 50-day MAVG* | 100-day MAVG* | 5-day | Month-to-Date | Quarter-to-Date | Year-to-Date | |
| S&P 500 | 7138.80 | 6796.93 | 6847.11 | 0.01% | 9.35% | 9.35% | 4.28% |
| Tech | 6085.40 | 5488.71 | 5556.70 | 0.11% | 17.98% | 17.98% | 7.06% |
| Communications | 479.38 | 446.81 | 451.09 | 1.21% | 14.06% | 14.06% | 5.97% |
| Financials | 862.65 | 841.44 | 871.56 | -0.65% | 4.92% | 4.92% | -5.37% |
| Utilities | 469.91 | 469.80 | 454.32 | 3.08% | 0.75% | 0.75% | 8.32% |
| Real Estate | 279.24 | 270.95 | 265.66 | 1.05% | 7.41% | 7.41% | 9.49% |
| Discretionary | 1927.21 | 1828.66 | 1885.62 | -1.03% | 10.24% | 10.24% | -0.06% |
| Energy | 882.24 | 880.86 | 809.62 | 1.92% | -6.47% | -6.47% | 28.35% |
| Industrials | 1447.18 | 1434.70 | 1407.84 | -0.06% | 5.66% | 5.66% | 10.21% |
| Healthcare | 1675.47 | 1746.29 | 1781.59 | -1.77% | -2.04% | -2.04% | -7.22% |
| Staples | 939.27 | 943.29 | 926.68 | 1.10% | 1.48% | 1.48% | 8.60% |
| Materials | 644.80 | 640.83 | 625.83 | -1.19% | 2.70% | 2.70% | 12.25% |
Source: Bloomberg, BMO GAM (as of April 27th, 2026)
Chart 6 – Seasonality Chart (Avg Rank Over Past 35 Years)
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