Wolfe stays defensive but sees AI spending supporting growth stocks

Investing.com -- Wolfe Research maintained a defensive investment stance amid economic uncertainty, but continues to back growth stocks with exposure to artificial intelligence.

In a note, the firm said it expects interest rates to remain unchanged but warned markets may be too relaxed about inflation.

“Our sense is there could be a potential risk of the Fed cutting interest rates 0 times this year,” analysts at Wolfe wrote, citing lingering inflationary risks in the second half of 2025 despite recent soft readings.

Nevertheless, the firm does not anticipate a recession in 2025. “We do not see a recession this year based on continued spending from the U.S. consumer,” the analysts said, pointing to the resilience of both high-income households, supported by the wealth effect, and lower-income households, which may benefit from the OBBB.

In this environment, Wolfe’s U.S. Market Cycle Framework continues to signal a “late cycle” backdrop.

The firm recommends investors maintain exposure to defensive sectors like consumer staples and utilities. However, it also sees promise in secular growth sectors—particularly technology and discretionary—due to their link to artificial intelligence.

“We’d remain defensively positioned (Staples, Utilities), while also favoring secular growth areas of the market (Tech, Discretionary) given their exposure to the AI Spending narrative,” the note said.

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