Freedom expects a correction in the tech sector in July. But it won't last long.

Freedom Broker expects a technical correction in the IT sector in July, according to its strategic outlook for the third quarter and the remainder of the year. The document is available to Oninvest. Following a phenomenal rally in the U.S. market, investors’ risk appetite declined in the final weeks of June, analysts noted. They assured that growth would return, as fundamental assessments of the technology sector have become more optimistic. In the past quarter, companies reported better-than-expected results and raised their financial forecasts more significantly than the market as a whole, the strategists explained.

At the same time, in terms of the price-to-earnings ratio, technology stocks are still valued lower than industrial stocks or non-essential goods producers, and are trading at a premium of just 14% relative to the broader market, analysts note.

According to their estimates, even taking into account the expected slowdown in July, the IT sector will grow by 4% by the end of the third quarter and will post 9% growth by the end of the year.

The chronic shortage of chips and other components, as well as the slow redistribution of revenue from semiconductor companies to the next players in the value chain, continue to make them attractive investment opportunities. Despite this, Freedom separately warns of a July correction in the stocks of these companies.

The rally of recent months has heightened concerns about the industry overheating and the return on investment in AI. Strategists suggest that portfolio rebalancing by funds, combined with new mega-IPOs, could lead to a temporary downturn. In particular, the upcoming U.S. IPO of South Korea’s SK Hynix—one of the world’s three leading memory chip manufacturers— could put pressure on stock prices.

Component shortages and rising costs will hit chipmakers that rely on the consumer electronics, automotive, and Internet of Things (IoT) sectors. However, the setbacks in these areas are offset because these manufacturers remain the main beneficiaries of the global AI trend, according to Freedom.

Analysts predict that investors will continue to bet on companies that are addressing capacity shortages in AI infrastructure. In addition to memory chip manufacturers, these include companies that produce networking devices, power supply systems, and other specialized equipment.

In its baseline, most likely scenario, Freedom expects the S&P 500 broad-market index to reach 8,000 points by the end of the year. This target implies a 6.7% increase from the closing level on July 1.

The main macroeconomic risk—fears that higher inflation caused by rising fuel prices will eventually spread throughout the economy—has eased, according to the strategic review. Analysts expect core inflation to average no more than 0.23% per month in the third quarter and do not anticipate the U.S. Federal Reserve raising interest rates this year.

“We expect the oil factor to continue to weaken, with short-term inflation expectations settling in the 2.1–2.3% range, and the Fed will keep rates unchanged in 2026 but will be ready to resume its easing cycle in 2027,” the strategists wrote.

If the data confirms a further slowdown in inflation, investors may revise their rate expectations, which would provide an additional driver of growth for risk assets. However, if prices continue to rise by more than 0.27% month-over-month, this would signal that tight monetary policy is losing its effectiveness and would force the Fed to resume rate hikes, Freedom warned. Moreover, analysts noted that rising prices for semiconductors and components for AI infrastructure could become a major inflationary factor.

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