Industrial stocks are the top sector pick of LPL Financial’s chief equity strategist Jeffrey Buchbinder, who says he also believes in a “roughly balanced approach” to growth versus value stocks.

“Growth soundly beat value on technology’s strength,” in the first quarter of 2023, Buchbinder said in a press release. “Lower interest rates and lower inflation supported the growth style.”

Growth stocks now have premium valuations, he said, but the macroeconomic conditions—especially the easing of inflation and workforce shortages—would seem to indicate the potential for more performance from growth stocks, he said.

Still, he added, “We’re in no rush to declare the value run is over.”

In the first quarter of 2023, the biggest contributors to the S&P 500’s gains were technology-related powerhouses: Apple, Microsoft Corp., NVIDIA Corp., Tesla, Meta Platforms, Alphabet,, Salesforce, Advanced Micro Devices and Broadcom. These 10 names drove 88% of the S&P 500’s performance during the quarter, Buchbinder said, which suggests relatively “narrow leadership” that often reflects “a less healthy rally than one with broader participation.”

Nevertheless, LPL has upgraded technology stocks after their phenomenal run-up in the first quarter—but only to neutral. The sector is “clearly in favor right now,” said Buchbinder, so further gains are possible. But outperformance is unlikely. “Nothing about technology’s fundamentals points to outperformance,” he said. “Earnings growth doesn’t stand out, nor do estimate revisions.”

LPL also upgraded communication services to neutral, noting that these stocks were the second-best performers in the first quarter. Earnings estimates and expected profit margins in this sector reflect “more spending discipline among its top constituents,” said Buchbinder. “The sector’s social-media-heavy names also got a boost from the possibility of a TikTok ban.”

Looking at the market overall, he observed that last year’s losers have so far become this year’s winners. Buchbinder and his asset allocation committee see “enough of a possibility” that this trend will continue to downgrade energy and healthcare stocks to neutral, though these names fared well last year.

So, with technology, communication services, energy, and healthcare all rated neutral, perhaps it’s not surprising that industrials are the team’s top pick.

Which industrials? Buchbinder declined to say. The macroeconomic story (especially the Federal Reserve’s efforts to combat inflation) favors large-cap stocks, he said, at least for the time being. “This may be a short-term stay on the sidelines [for small-cap stocks] because of how attractive small-cap valuations are currently,” he said.

For international markets, Buchbinder said he prefers developed countries over emerging markets. “The resilience of European markets,” particularly in France and Germany, has been “one of the biggest stories,” he said. “Europe’s economic resilience remains impressive.”

Buchbinder prefers U.S. equities over international markets going forward, however. “As long as growth stocks are working, it will be difficult for international markets to outperform,” he said.