A sideways market and rising earnings are presenting a buying opportunity for this crucial sector

By Jamie Chisholm

A 'meaningful reset' has made the technology sector more attractive relative to the overall market, says Truist

Technology valuations are near their levels at the time of ChatGPT's launch in late 2022.

The stock market this week had to absorb a fresh spike in oil prices, talk of the need to slow down the artificial-intelligence race lest it kill us all and the first interest-rate hike by the Federal Reserve in more than three years.

Little wonder the S&P 500 continues to spin its wheels since hitting a record high in mid-August, even though there's been intense sectoral volatility beneath the surface.

But it's that churn that has thrown up a notable opportunity for investors, according to our call of the day from a team of strategists at Truist led by Keith Lerner.

In commentary published Thursday, Truist notes that since June 2 the S&P 500 SPX is essentially flat, even as consensus earnings estimates have continued to rise. As a result, the index's forward price-to-earnings multiple has declined to approximately 19, which is near the valuation low reached during the spike in oil prices at the start of the Iran war.

"This distinction matters," according to Truist. "A sideways market with rising earnings is fundamentally different from a market whose valuation is falling because earnings expectations are deteriorating. In this case, time and earnings growth have allowed valuations to compress without requiring a major decline in the index."

And this valuation reset has been even more meaningful for technology stocks XLK. The sector's forward P/E has fallen from a multiple of 32 last October to approximately 21, roughly where it stood when OpenAI launched ChatGPT in November 2022, according to Truist.

Meanwhile, the Truist team observes that tech's forward earnings growth remains by far the strongest in the market, with estimates rising approximately 20% over just the past three months.

"There are still risks and open questions around circular financing and the pace of new model development," in the Truist view. "Yet, with tech's relative valuation premium down to approximately 9%, near the lowest level of the past decade, the sector appears to be reflecting at least some of that uncertainty."

This reset for technology makes the sector more attractive relative to the rest of the market, Truist thinks.

Also likely to support stocks is news that the latest American Association of Individual Investors survey shows bearish sentiment at its highest level since May 2025, in the wake of President Donald Trump's tariff shock, and nearing highs more commonly associated with equity-market lows, according to Truist.

"At the same time, market breadth, while not quite washed out, is approaching those levels as weakness has broadened beneath the surface. The percentage of stocks above their 50-day moving average has declined to 30%; readings in the 20s are often considered oversold," the Truist team says.

Truist notes risks to its positive view. History shows the stock market may be choppy in the first few months of a Fed rate-hiking cycle - though stocks were higher 12 months later in five of the six such cycles, with an average gain of 9%, the team adds.

Still, it notes: "The seasonal backdrop remains challenging, and macroeconomic uncertainty is elevated, while higher interest rates and oil prices could present a headwind for the economy and market valuations."

If the S&P 500 were to return to the valuation reached during the 2025 tariff shock, the index would trade near 18 times forward earnings, implying an S&P level around 7,200, Truist calculates. That's an area reinforced by other support measures, including the 200-day moving average and the median historical pullback of roughly 7%.

Truist's bottom line is that the weight of the evidence supports staying aligned with the longer-term market uptrend. "Underweight investors should consider adding equity exposure, with tech presenting a relative opportunity today. A deeper pullback would potentially provide an opportunity to become more aggressive."

The markets

U.S. stock-indices SPX DJIA COMP are mixed at the opening bell on Wall Street as Treasury yields BX:TMUBMUSD10Y rise. The dollar index DXY is up, as oil futures (CL.1) turn higher and gold futures (GC00) trade around $4,412 an ounce.

 
Key asset performance                                                Last       5d     1m      YTD     1y 
S&P 500                                                              7637.76    0.61%  -0.04%  11.57%  15.17% 
Nasdaq Composite                                                     26,418.30  1.29%  1.35%   13.67%  17.57% 
10-year Treasury                                                     4.963      -1.10  22.70   79.10   83.20 
Gold                                                                 4427.2     0.85%  -5.03%  2.19%   19.03% 
Oil                                                                  100.83     0.84%  16.38%  75.63%  61.69% 
Data: MarketWatch. Treasury yields change expressed in basis points 

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The buzz

Warren Buffett is stepping down as the chairman of Berkshire Hathaway (BRK.A) (BRK.B) effective immediately, the company announced Friday.

Wall Street will have to navigate a "quadruple witching" Friday, the once-a-quarter event when certain stock-index futures, stock-index options, stock options and single-stock futures all expire.

The Bank of Japan raised interest rates as expected by 25 basis points to a 31-year high of 1.25%, but the yen (USDJPY) fell sharply after two central-bank voters dissented.

Xenon Pharmaceuticals shares (XENE) are sliding after the company paused enrollment for trials of azetukalner to treat depression and bipolar treatments after adverse events occurred in the studies.

U.S. industrial production was flat in August compared to the month before, below economist forecasts of 0.3% growth.

U.S. leading economic indicators for August are released at 10 a.m.

Fed Vice Chair for Supervision Michelle Bowman will participate in a chat in London on stress testing at 9:30 a.m.

How three brothers built an AI slop empire.

The chart

"Korean customs data offer the earliest and cleanest reading on global technology demand, and the first ten days of September produced some of the largest numbers on record," says Andrew Cates, senior international economist at Haver Analytics. He notes that semiconductor shipments were worth $16.5 billion in that window, close to 31/2 times their value a year earlier, and accounted for 47% of all Korean exports. Total exports rose by more than 80%, with shipments to China doubling and those to the United States more than doubling. "This is the ... physical counterpart of the capital spending recorded in the American accounts," Cates adds.

Top tickers

Here were the most active stock-market ticker symbols on MarketWatch as of 6 a.m. Eastern.

 
Ticker symbol  Security name 
NVDA           Nvidia 
TSLA           Tesla 
GME            GameStop 
SPCX           SpaceX 
MU             Micron Technology 
AMD            Advanced Micro Devices 
AAPL           Apple 
TSM            Taiwan Semiconductor Manufacturing 
INTC           Intel 
META           Meta Platforms 

Crocodile-infested river to host Olympic rowing events. Expect some faster times.

-Jamie Chisholm

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(END) Dow Jones Newswires

09-18-26 0930ET