Research Roundup: Tech stock prices down sharply, profit growth outlook the same

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Tech sector on sale

Scotiabank strategist Simon Fitzgerald-Carrier points out that the sector with the highest profit growth is a lot cheaper now,

“Export figures from Taiwan, released last Friday, alongside earlier data from South Korea, show a sharp acceleration in semiconductor shipments. In March, semiconductor exports from Taiwan and South Korea surged by 150 per cent and 46 per cent, respectively. Taken together, exports from both countries nearly doubled year-over-year, underscoring the continued strength of AI-related demand ... Such trends have historically coincided with stronger performance in the S&P 500 Tech sector. Against this backdrop, we believe recent concerns around AI’s potential disruption to software companies, its capex requirements, and uncertainty around future revenues may now be creating an attractive entry point. The S&P 500 Tech sector is currently trading at 21.5-times forward earnings, down sharply from 31 times last October. While the sector lost almost all of its valuation premium relative to the broader S&P 500 (7 per cent vs a peak of around 50 per cent in mid-2024), it has maintained stronger relative forward EPS momentum. .. the ratio between Tech fwd EPS and S&P 500 fwd EPS (blue line) has kept rising. While further downside is possible amid ongoing U.S.–Iran tensions, the sector now offers a compelling upside potential relative to the S&P 500. We therefore reiterate our small OW Tech positioning ahead of the U.S. Q1/26 earnings season. We expect the sector to deliver more positive surprises, as earnings revisions continue to move higher and outpace accelerating capex revisions. Recall that bottom-up consensus forecasts Tech earnings growth of 26 per cent year-over-year in Q1/26, making it the highest earnings grower within the S&P 500″

Fund managers turn bearish

The BofA Securities monthly fund manager survey (FMS) finds investors turning bearish according to investment strategist Michael Hartnett’s summary,

“Most bearish Fund Manager Survey (FMS) since Jun’25, expectations for growth down most since Mar’22, for inflation highest since May’21 … All contrarian positive for risk assets so long as ceasefire sends oil price less than $84/bbl; but not a ‘close-eyes-and-buy’ FMS…no recession say 7/10, no cash surge cash (4.3 per cent), investors still long global stocks, so rate cuts and EPS beats needed to sustain new highs. On Macro: outlook for global growth plunges to -36 per cent, for inflation soars to 69 per cent; but while investors expect slower growth, few predict recession (70 per cent say unlikely), and macro base case is soft landing (52 per cent), no landing (32 per cent), not a hard landing (9 per cent) … Geopolitical tail risk means investors forecast oil at $84/bbl end-26; most crowded trades = long oil (24 per cent) and long semiconductors (24 per cent); expectations of Dem. sweep in US midterms rising (36 per cent), for split DEM House/GOP Senate falling (40 per cent) … Contrarian Trades: FMS says Q2 bull surprise = lower oil, inflation + rate cuts…most bullish for bonds, consumer discretionary, REITs, Japan; FMS says Q2 bear surprise = recession risks keep rising … Most bearish for commodities, materials, and EM stocks”

Bulls

Morgan Stanley chief U.S. equity strategist is among the most bullish pundits in New York,

“We enter the week with markets that still feel fragile to most investors but are likely further along in the discounting process than many appreciate. In fact, as discussed in our Weekly Warm-Up last Monday, the S&P 500 was in the process of carving out a low after hitting the low end of our targeted range of 6300-6500 for this correction … From our perspective, the correction began last October, with the S&P 500’s forward P/E declining 18 per cent from its peak … Beneath the surface, more than half of the stocks in the Russell 3000 have dropped 20 per cent or more. To us, that’s not complacency but a market that has appropriately discounted the risks the comparison to prior oil shocks is less concerning to us. In those cycles, earnings were already deteriorating or falling sharply. Today, they are accelerating from already high levels, and the magnitude of the oil move remains more modest by historical standards, particularly in real terms and in the context of sharply higher (10-per-cent-plus) tax refunds this year … AI looks more likely to support, rather than compress, margins, particularly for early adopters … we continue to favor leaning into a barbell of cyclicals where earnings remain strong and valuations have compressed (Financials, Industrials, Consumer Discretionary Goods), offset by quality growth where sentiment and valuations have also reset to healthy levels (the hyperscalers)”

Bluesky post of the day

Diversion

“Moon Denialists Are So Pathetic That They’re Using AI to Fake Artemis Footage” - Futurism