By Martin Baccardax
The S&P 500 is powering into one of its strongest periods of gains since the Covid pandemic, as investors learn to live with U.S.-Iran war risks, higher oil prices, and the potential for slowing growth with faster inflation.
But they also appear happy to move ahead without what was once one of the market's most-important sectors. And they might not bother to look back.
Software stocks have been notably absent from the market's early spring rally, which has taken the S&P 500 back to the all-time highs it reached in late January.
The iShares Expanded Tech-Software Sector ETF, the sector-tracking benchmark, has booked a 10% advance so far this week, rebounding from its lowest close since November 2023, but remains just 0.7% north of its prewar levels. The S&P 500, meanwhile, has gained 1.8% since Feb. 27.
Trivariate Research's Adam Parker, thinks that while the broader market is likely trading on near-term influences, such as the easing of tensions in the Gulf region, the software sector is suffering from a bearish outlook over the longer term.
"Many investors said to us this past week that the market doesn't seem like it is trading on fundamentals. Instead, it appears to be trading largely on Hormuz-related news in the short-term, and otherwise hard-to-prove speculation about AI's impact," he said.
"Perhaps software is down because its 2030 sales outcomes are skewed to the downside," he added. "We think the market is right."
That makes sense to Jonathan Krinsky, chief market technician at BTIG, as well.
"One of the themes we have been adamant about throughout the recent volatility is that a resolution in the Middle East was unlikely to change the problems under the surface that began well ahead of the escalation," he said. "Front and center is software."
Those problems are myriad.
Advances in artificial intelligence have challenged both the business models of many enterprise software companies and tested the efficacy if their existing products. AI has also raised big questions about cybersecurity, code creation, and next-stage development.
AI giants such as OpenAI and Anthropic, meanwhile, are pushing harder into the enterprise space, where software companies earn the lion's share of their revenue, with the former touting an alliance with Amazon in a memo to employees last week.
"The software group has been under severe valuation pressure recently due to fears that generative AI technology makes their collective business models easy to replicate and undermine," said Richard Baldry, senior research analyst at Roth.
Collectively, that's lopped off around a third of the sector's market cap, pegging its enterprise value to sales ratio value back to levels last seen in the autumn of 2022, just before the release of OpenAI's ChatGPT.
Some of the sector's biggest names are seeing big price recoveries as a result, with Microsoft rising more than 10% over the past five days, and Oracle gaining a stunning 19.5% over the same period.
But that doesn't make the broader index any more attractive, according to Bespoke Investment Group.
"While it may be tempting to jump into the beaten-down software group, at this point, you're still catching a falling knife," co-founders Paul Hickey and Justin Walters said in a blog post on Tuesday. "For us to turn more positive, we'd want to first see the 50-day moving average [$78.85] get retaken and then a series of higher lows and higher highs get established."
Adam Turnquist, chief technical strategist for LPL Financial, sees weakness in the current charts as well, even with this week's solid 6.4% rebound.
"While this represents an important step in the right direction, several resistance levels remain in place before technical evidence would suggest a durable low has been established," he cautioned.
"The sector remains in a downtrend and still has technical damage to repair before evidence aligns for a bottom, but improving momentum and volume trends suggest selling pressure may be losing some steam."
Write to Martin Baccardax at martin.baccardax@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 15, 2026 13:51 ET (17:51 GMT)
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