Danske Research Team reports a solid rebound in US equities, with the S&P 500 up 1% and tech leading gains. US software surged, helped by expectations for a strong Q1 earnings season, where consensus sees 12% earnings growth for the S&P 500 and nearly 40% for tech, alongside a notable valuation discount versus industrials.

Tech leadership returns on earnings strength

"What looked to be a muted opening in the futures markets turned out to be a solid rebound session in the US. The S&P 500 rose 1% and Nasdaq and the small-cap Russell closer to 1.5%. European and Nordic markets, which had started the day 1% lower, rebounded into the close, ending little changed."

"One trigger for the rebound in equities, outside geopolitics, was the tech sector. US software rebounded a full 5.4% yesterday and companies like Oracle rallied 13%. Again, the trigger for this rebound is not entirely obvious; however, we think the approaching earnings season has something to do with it."

"The US is expected to deliver another impressive quarter. Consensus looks for 12% earnings growth in Q1 for the S&P 500, with an impressive 9% coming from the top line. Tech is the standout, expected to print nearly 40% y/y earnings growth."

"However, the difference is that software multiples have already corrected to be closer to the market average. In fact, the global tech sector (including hardware) trades at more than a 15% discount to global industrials, although the former is expected to grow 40% in Q1 while industrials are barely expected to grow at all."

"Tech has seen massively lifted earnings estimates this year - 2026 earnings estimates are up 15% YTD - while industrials have seen no earnings upgrades at all. We think the surging earnings growth, on top of this unprecedented valuation discount, will capture investors' focus."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)