In my previous blog posts, I explained why I believe the U.S. tech industry, particularly blue-chip, mature companies, has room to run in this expensive bull market.

We’ve talked about the hefty balance sheets held by some of the best-known, established brands, which can help them deliver returns to shareholders. And we’ve discussed how their strong quarterly earnings support their higher valuations.

Another reason we like mature U.S. tech is that it’s a cyclical industry. In other words, when the economy gets stronger, cyclical sectors like tech have tended to generate higher revenues through increased consumer spending. Companies with higher revenues have a greater opportunity to increase shareholder-friendly policies compared to industries that are “defensive” in nature.

Due to continued resilience in U.S. economic growth and anticipation that the Federal Reserve will likely raise interest rates this year, we’re starting to see investor sentiment transitioning from defensive to cyclical stocks. Here’s why:

The defensive end

Typically, defensive industries―such as utilities and consumer staples―do well during a recession because people and companies restrict their spending to necessities. Since their revenue is relatively stable, many companies can afford to pay consistent dividends. Investors, therefore, gravitate toward them for stable income and lower potential volatility.

But some defensive sectors, like utilities and telecom, are also capital intensive and carry enormous levels of debt. When interest rates rise due to a healthier economy, these defensive companies come under more pressure because of increased borrowing costs. This can erode profitability and eventually depress their stock prices.

What’s more, with valuations in these sectors at historically high levels, this leaves much of the defensive universe, particularly in the United States, vulnerable. For example, U.S. utility companies are currently trading at approximately 19 times trailing earnings, a 7% premium to the broader market. Over the past 20 years, U.S. utilities have traditionally traded at a discount, roughly 20% on average. The high relative valuation is supported, for now, by low yields. However, should real rates rise even modestly, it would be much harder to sustain current values, suggesting the sector would be likely to see its multiples (price-to-earnings ratio) contract relative to the broader market.

Cycling forward

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