Stocks nearing a rotation out of tech: Strategist

With the Federal Reserve's decision to keep interest rates steady and the potential for future rate hikes this year, investors are rethinking where to put their money. David Mazza, Roundhill Investments Chief Strategy Officer, told Yahoo Finance that as higher rates continue, we could soon see a rotation out of the heavily favored tech sector, and into areas like energy.

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Video Transcript

BRAD SMITH: I mean, It's interesting as well coming off of a year where energy was the biggest outperformer. So do you believe that given the outperformance that we had seen even recently-- you were mentioning in your notes the Algerian LNG index yielding 4.2%, outpacing some major averages in the broader energy market-- are we due to see another, by year end, major year for energy?

DAVID MAZZA: Yeah, so you're absolutely right. So we saw-- we've sort of seen a reversal and then another reversal, right? So last year, tech really saw that element of sort of this rolling recession hit the space-- significant number of layoffs, companies pulling back on spending. Of course, this is now the year of efficiency at companies like Meta. And then energy was put to the wayside because of the excitement around AI, and that's an area, to be clear, that we continue to see long term opportunities in.

But in the shorter term space, I do think, particularly with higher rates, investors are going to need to be more selective in-- sort of toward-- to your point, toward the back half of the year where the opportunities are. And one of those is areas that are more value-oriented that are paying you likely a higher dividend yield, a higher dividend income. LNG companies are a prime example of that, right? They're yielding over 4% in today's market. That's-- that's-- certainly if you wanted to stay in the treasury space, you could get more than that now on the short end, but you don't have the benefit of, of course, capital appreciation.

So for stock investors, I actually think probably taking perhaps a more value-oriented tilt into their portfolios toward year end may be beneficial for them because we are at the cusp potentially. And this week's market performance is emblematic of that of a bit of a rotation out of the high flyers, out of tech, and the rally not necessarily broadening out at all as we saw earlier in the year but actually moving toward energy, moving toward other sectors of that which may be better prepared for a higher interest rate environment than certain tech companies.