'Attractive entry point': sell-off in IT made stocks profitable again - Yardeni

Shares of technology companies after the sell-off look attractive again for those who are ready to play "for the long haul", says Ed Yardeni, one of the main optimists on Wall Street. The volatile stock market as a whole has already passed the "bottom" stage, he believes. Wells Fargo and Goldman Sachs also share the analyst's positive view of the IT sector.

"For investors with a multi-year planning horizon, there is now an attractive entry point [into the market]," Yardeni Research founder Ed Yardeni said in a note cited by Bloomberg. It was published on Sunday, April 5.

Information technology, along with communications services, now accounts for the majority of the market capitalization of the S&P 500 broad market index. That share exceeds the peak of the dot-com era in the late 1990s and early 2000s, Yardeni said. While that comparison may make some nervous, the current situation is characterized by "a lot of support from earnings" compared with more than 26 years ago, the analyst said.

"Today, the expected profit share of these two sectors is 42%, just 1.6 percentage points above their share of market capitalization," Yardeni said. - At the peak of the dot-com bubble, the gap between capitalization share and profit share exceeded 15 percentage points. Today's concentration is well deserved."

The S&P 500 Information Technology IT sector index rose 0.5% on Monday, April 6, extending its streak of gains to four days - the longest such period since late January, Bloomberg writes. Despite this, the sector remains down 7.1% since the beginning of 2026. The main pressure on quotations was exerted by concerns about inflated valuations, fear of the destructive impact of AI on the software market and the general refusal of investors from risky assets. As Bloomberg notes, since the October peak, shares of the IT sector have already fallen by 13%, including due to uncertainty around the U.S. war with Iran. However, against the backdrop of this fall, the companies' profit forecasts, on the contrary, have improved. As a result, the sector's P/E ratio fell to 20.6, almost equal to the market-wide S&P 500 index (19.6).

The volatile stock market in general has already passed the "bottom" stage, as geopolitical turmoil often creates opportunities for profitable purchases, reports Yardeni's opinion CNBC. Nevertheless, the analyst recognizes that amid the uncertainty on Wall Street caused by the military conflict, one cannot be 100% sure. However, historical experience is encouraging: after the last four major military conflicts involving the U.S., the S&P 500 index rose between 31% and 44% over the next two years, he says.

In addition to historical precedents, fundamental indicators also speak in favor of the market. The valuation of companies in the S&P 500 has become noticeably more attractive: against the backdrop of a 12.7% increase in profits, the P/E ratio (ratio of share price to projected earnings) has fallen from October's 23 points. Additional arguments in favor of the "bullish" scenario Yardeni calls the stable market breadth and record profit margins of companies.

Yardeni's opinion is shared by Wells Fargo Investment Institute. The analysts upgraded the IT sector from neutral to "favorable" (favorable), noting its lagging behind the broad market in recent months and the strong outlook provided by the active development of infrastructure for artificial intelligence. In addition, the IT sector has so far performed better than the S&P 500 amid the war in the Middle East, Wells Fargo added.

"The gradual decline in recent months has brought valuations to more attractive levels and we believe that the pessimistic sentiment around the sector is overly exaggerated," the experts concluded.

Analysts at Goldman Sachs also said on April 7 that technology stocks look undervalued after a long period of underperformance, creating a potential entry point for investors, Reuters writes.

"Since the beginning of the year, we have seen one of the weakest periods of relative returns for the technology sector in 50 years," Goldman Sachs experts said (quoted by Reuters).

The bank's strategists believe that the IT sector may prove to be defensive in the coming months. This is due to the fact that cash flows of technology companies are insensitive to overall economic growth rates, and the sector itself can benefit from any rally in bond yields, Reuters emphasizes.

This article was AI-translated and verified by a human editor