Scott Chronert, head of U.S. equity strategy at Citi Research, predicted the tech sector (VGT), (XLK) is entering what he calls a “reverse perfect storm” as major technology companies prepare to report earnings.
With semiconductors (SMH), (SOXX), software (IGV), (XSW), and hyperscalers facing different market pressures, Chronert expects solid quarterly results to validate the ongoing AI trade and perpetuate the current narrow leadership among tech giants.
Speaking in an interview with CNBC, Chronert explained that investors are looking for “confirmation of what’s been ongoing for the past several quarters now, which is a pretty notable beat and raise.”
The comments came as the S&P 500 (SP500) touched record highs and the Nasdaq (COMP:IND) recorded an eleven-day winning streak, fueled by a significant shift from risk-off to risk-on positioning following the de-escalation of the Iran conflict.
The market recovery has produced some historic moves, with Oracle (ORCL) surging 29% and Microsoft (MSFT) climbing 14% in a single week.
Chronert noted that this repositioning mirrors what occurred last year around the “liberation day tariffs” in early April, as investors gained more confidence in a potential wind-down of geopolitical tensions.
While Citi remains bullish on semiconductors (SMH), Chronert acknowledged that “the software sector has been under duress, as have the hyperscalers.”
This divergence creates the conditions for what he describes as a reverse perfect storm—when companies that have been under pressure deliver strong earnings, it could spark a significant rally in those beaten-down segments.
“What you have here is sort of an interesting, I’m going to say, reverse perfect storm, whereas these companies then come through with solid earnings, it should perpetuate this narrow leadership right now,” Chronert said.
He added that this dynamic “then begins to set the stage for more time to pass around oil prices in Iran and get us back to a broadening thesis perhaps coming into play as we go further into the summer months.”
The strategist emphasized that investor confidence hinges on gaining “line of sight” toward resolution of geopolitical concerns.
As those tensions ease and tech earnings validate current valuations, Chronert expects the market’s focus to gradually shift from concentrated mega-cap leadership to a broader rally across sectors in the months ahead.
Tech ETFs: (VGT), (XLK), (IYW), (FTEC), (IXN), and (RSPT).
Artificial Intelligence/Robotics ETFs: (AIQ), (BOTZ), (DTEC), (WTAI), (XAIX), (WISE), (GINN), (ROBT), (TECB), (XT), (THNQ), and (CHAT).
Semiconductor ETFs: (SMH), (SOXX), (SOXL), (FTXL), (XSD), (USD), (PSI), and (SEMI).
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