Lombard Odier Names Finance, Utilities, Materials and Healthcare as Top Sectors for Equity Gains

Four Sectors Lombard Odier Is Betting On After July’s Market Shakeout

Following a turbulent July that rattled global equity markets, Lombard Odier analysts see a medium-term landscape that remains “positive,” bolstered by steadily rising corporate profits. In a recent report, the Swiss bank singled out four sectors it believes are best placed to extend the rally: finance, utilities, materials and healthcare.

The call comes as earnings growth broadens beyond the technology giants that dominated earlier gains. While fears over higher interest rates, the Iran conflict and doubts about the AI-fuelled rally persist, Lombard Odier stresses that the upward revision cycle in company earnings is providing a powerful counterweight. Financials have beaten second-quarter expectations thanks to resilient credit and net interest margins, and the bank expects gradual productivity gains from AI to add further tailwinds.

Utilities are flagged for their dual role as defensive holdings and direct beneficiaries of the electrification needed to power artificial intelligence. Materials companies, meanwhile, are riding strong demand for copper and aluminium driven by the global energy transition. Healthcare, which has lagged, is seen as a recovery play: underlying earnings growth is positive, but second-quarter results were weighed down by one-off M&A charges. Lombard Odier points to catalysts such as potential US health coverage for obesity drugs, a cyclical rebound in medical equipment and continued innovation in oncology and immunology.

The Earnings and Thematic Backdrop Behind Each Sector Pick

Financials: Riding Credit Strength and an AI Productivity Kicker

Lombard Odier notes that banks and insurers have joined energy and tech in powering the earnings upswing, but Financials now look more attractive than richly valued technology shares and more volatile oil majors. The sector’s second-quarter results exceeded forecasts, supported by solid lending activity and wide net interest margins. The bank argues this momentum can endure, with AI-driven efficiency improvements adding a gradual boost. While rate cuts could eventually compress lending margins, for now the strong credit environment supports the thesis.

Utilities: The AI Electrification and Industrial Spending Overlay

Viewed as a defensive sector, utilities here benefit from three specific catalysts: the surge in electricity demand from AI data centres, the broader push toward electrification of industry and transport, and the upswing in industrial capital expenditure. Rather than a pure safe-haven trade, Lombard Odier frames utilities as a way to invest in the AI theme without paying tech multiples. The analysis implies that regulated or quasi-regulated earnings streams could see incremental volume growth tied to rising baseload power needs.

Materials: Metals Demand Fuelled by the Energy Transition

The materials sector is positioned as an industrial cycle play anchored by the energy transition. Copper and aluminium demand is being driven by electrification, grid upgrades and renewable buildout, which Lombard Odier says is generating strong earnings growth. This is not a short-term commodity bet but a structural demand story. The endorsement also suggests a view that policy support for green infrastructure remains intact in key markets, though the sector’s cyclical nature means it remains sensitive to global growth expectations.

Healthcare: A Lagging Sector with a Catalyst Pipeline

Healthcare stands out as the only major sector where worldwide earnings growth has been held back—here by extraordinary M&A-related charges—while underlying growth remains positive. Lombard Odier expects the earnings momentum to improve in coming quarters, underpinned by several factors: a potential expansion of US health coverage for obesity medications, a cyclical recovery in medical equipment following post-pandemic normalization, and continued drug innovation in high-value areas like obesity, oncology and immunology. The bank also sees easing price pressures as a positive after years of political and regulatory headwinds on drug pricing.

What the Call Means for Portfolio Positioning and Sector Rotation

For investors assessing sector allocation:

• Consider overweighting financials relative to technology and energy, given the combination of solid credit trends and less extreme valuations. Watch for any signal that loan growth or margins are peaking.
• Add utilities exposure as a way to capture AI-driven electricity demand growth with lower downside risk; look for names with regulated returns and planned grid investment.
• Review metals and mining holdings tied to copper and aluminium, where energy transition spending provides multi-year demand visibility, but manage exposure to global economic slowdown risks.
• Monitor healthcare catalysts. Key events that could unlock value include US regulatory moves on obesity drug coverage, medical device order trends and clinical trial readouts in oncology/immunology.

Lombard Odier’s sector call aligns with a broader narrative of earnings broadening beyond tech. The implementation, however, hinges on the persistence of profit upgrades and the specific catalysts each sector relies on.