RBC Capital Markets analyst Lori Calvasina has downgraded the technology sector from an "Overweight" rating to "Market Weight" after an impressive 2023 performance stirred doubts around current valuations. Offsetting its tech downgrade, RBC lifted ratings for the consumer discretionary and utilities sectors.

Yahoo Finance's Josh Schafer breaks down the details.

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Editor's note: This article was written by Angel Smith

Video Transcript

SEANA SMITH: Let's get to a big call out from Wall Street. RBC Capital Markets seeing more downside risk for tech, downgrading tech to market weight, that's down from overweight. Now the analysts there Lori Calvasina saying that after a massive rally in 2023, the tech sector's valuations are clearly expensive for the median stock in the sector. Break it all down, we have Yahoo Finance's reporter Josh Schafer. Josh what does everyone need to know and keep in mind when this is one of the biggest risks you could say to the broader market.

JOSH SCHAFER: So keep in mind, I would say, when we talk about market commentary, when we talk about how Wall Street ranks these sectors, remember you can only be overweight in so many sectors, right, Seana, and I think that's an important thing to highlight here. They're going from overweight to equal-weight on tech. They're not going underweight here, they're not saying tech is not a place to be, just maybe there's better places to be. And I think even when we think about the recent calls on Apple, that's a way to understand how Wall Street commentary works. It's not necessarily saying sell the stock or sell the sector, but maybe you can make more money elsewhere.

And when you think about what else RBC moved up here, so you take a look at tech, they downgraded tech, they upgraded consumer discretionary, and they upgraded utilities to overweight. You take a look at those three charts over the last year, guess what, tech outperformed consumer discretionary and tech outperformed utilities. So it's not that hard to look at that chart and understand if we were thinking what's got more room to run here, it's probably not tech. At a high level, that's a way to understand this call.

But one other thing that they highlight in here it's saying a positive on tech. They talk about revisions to EPS, revisions to earnings per share, and the overall outlook for fourth quarter earnings. There's a great chart out from Deutsche Bank I want to highlight here that shows earnings revisions that we're seeing for the current quarter. See all those negatives on your left? Brad, what's the only one that's positive there?