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If anyone believes in symbols, now is the time to sell the S&P 500. Shares of Cisco, a leader among Internet companies in the 1990s, have returned to their record levels. Its collapse became emblematic of the dot-com bubble. Since then, the stock has struggled to recover, and only in 2025 did it find its moment again. The fundamental valuation of today's tech companies is as high as that of their predecessors. Will history repeat itself, causing the broad stock index to plunge into another wave of sell-offs?
S&P 500 Price-to-Forward Earnings Dynamics
Disappointing earnings reports from Broadcom and Oracle continue to stir investor sentiments and prompt exits from Big Tech. Moreover, Bank of America and Morgan Stanley are recommending a shift toward sectors such as healthcare, industrials, and energy. They believe that tech giants will no longer drive the show.
In reality, the rotation of securities within investment portfolios is in full swing. Bank stocks have registered their third consecutive weekly gain, marking the longest winning streak since August. The KBW Bank Index has closed in the green in 13 of the last 15 trading sessions, rising by 29% since the beginning of the year compared to a 15% increase for the S&P 500.
S&P 500 and Bank Index Dynamics
Investors are anxiously observing the colossal expenses of tech companies and continue to draw parallels with the dot-com crisis. In the late 1990s, massive amounts—over $100 billion at the time—were invested in telecommunications networks. There was so much fiber optic cable that much of it went unused. A very similar story exists with today's data centers. Money flows freely, yet investment efficiency leaves much to be desired.
However, AI enthusiasts have their arguments. Tech giants can afford to pump money into the sector and are willing to do so. The successes of companies in creating new products inspire optimism. Goldman Sachs forecasts a 12% increase in corporate earnings for S&P 500 issuers in 2026 and a 10% increase in 2027. The bank estimates the contribution of AI at 0.4 percentage points and 1.5 percentage points, respectively. The fading negativity from tariffs will also contribute.
Thus, while the tech bubble has not burst, it is slowly deflating. The rotation of stocks in investment portfolios continues on the American market, with the banking sector showing the greatest successes. Yesterday's leaders, including the Magnificent Seven stocks, are actively being sold off, which is causing the broad stock index to retreat.
Technically, the daily chart of the S&P 500 shows prices falling below fair value at 6,850 and testing the upper dynamic support represented by the 5-day moving average. Purchases are recommended on rebounds from pivot levels at 6,770 and 6,750, as well as in the case of a return of the broad stock index above 6,850 and 6,900.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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