After touching the lower edge of the ten-year channel, US tech stocks rebounded sharply. Is the correction over?
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Last Friday, the US stock market bounced back with vengeance. The Dow broke above 50,000 for the first time, the S&P rose nearly 2%, marking the best single-day gain since May last year, Nvidia surged 7%. Is this merely a dead cat bounce, or the signal for a new round of gains?
According to Chase Wind Trading Desk, Deutsche Bank stated in its latest report that a key characteristic of this round of sell-off is: profit expectations are actually still rising, the market decline is entirely driven by valuation contraction, not by worsening fundamentals. Friday’s rebound may mark a reversal in sentiment.
Meanwhile, fund flow data show that extremely crowded trades in non-tech sectors are starting to show fatigue, and fund inflows into tech are rebounding.
The Counterattack at the Bottom of a Ten-Year Channel
This “bottoming out rebound” for tech stocks is not a coincidence. The report points out that over the past three months, funds have been fleeing large-cap tech stocks and pouring into other sectors, ignited by the Q3 2025 earnings season—when signs of profit growth beyond tech giants first appeared in the market.
However, Friday’s rebound may mark a reversal in sentiment. Deutsche Bank says:
The performance of large growth and tech stocks relative to the rest of the S&P 500 fell from the top of its ten-year excess returns channel in late October, down to the bottom at Thursday’s close, then rebounded on Friday.
Such drastic volatility is not unprecedented. Analysts liken it to the market response after last year’s “Deepseek announcement,” or to worries about profit slowdowns in July 2024, or even the digestion period of capital expenditure in 2018.
Valuation Slashing, Not Performance Slashing
The most noteworthy aspect is that this sell-off essentially amounts to a “vote of no confidence” in the sustainability of profits, rather than an actual deterioration in profits. Unlike the deep bear market triggered by a 17% year-over-year profit slump in 2022, the fundamentals of tech stocks remain solid now.
Deutsche Bank highlights a fact contrary to market sentiment:
Despite heavy market losses, forward profit expectations for large growth and tech stocks have actually risen this earnings season (up 2.0% for 2026, up 2.6% for 2027), with even the software sector being revised upwards.
This shows that this year’s market behavior is entirely driven by valuation multiple compression, sharply contrasting with last year’s price moves which were driven by earnings revisions.
Extreme Reversal of Fund Flows
Position data reveals dramatic swings in investor psychology. Overall equity positioning has been moving sideways at a moderately overweight level, but internal rotations are extremely intense. Funds are exiting large-cap tech and switching to small-cap stocks and other sectors.
Even more stunning is the funding frenzy earlier this year. Deutsche Bank report points out:
Ex-tech sector industry funds absorbed a record $62 billion in the first five weeks of this year… This pace of inflow is nearly 4 standard deviations above historical averages.
The material sector in particular has seen inflows that are more than 5 standard deviations above average.
However, the wind seems to be quietly shifting. This week’s data show that inflows into non-tech sectors are slowing, while tech sector fund inflows are starting to rebound (rising from $4 billion last week to $6 billion this week). When extreme crowded trades begin to unwind, it may signal the timing for contrarian investors to enter the market.
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