Unbelievable rapid reversal! Since the end of March, a 20% rebound, Mag 7 leads US stocks to new highs

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Tech giants have made a strong comeback, pushing US stocks to new historic highs.

Since the S&P 500 hit its low of 2026 on March 30, the tech giant sector represented by the Mag 7 has rebounded more than 20%, regaining about $4 trillion in market capitalization in just a few weeks. The S&P 500 and Nasdaq 100 have both reached new record highs, and the tech sector has leapt from the worst performing sector in the S&P 500 to the main leader. The speed of this reversal has surprised market participants.

In this round of rebound, seven tech stocks—Nvidia, Amazon, Microsoft, Broadcom, Alphabet, Meta, and Apple—have contributed more than half of the recent gains of the S&P 500. Microsoft’s movement is particularly typical: from its peak on October 28 to its low on March 27, the stock plunged 34%, then rebounded strongly by 19%. Ohsung Kwon, Chief Equity Strategist of Wells Fargo, said, “The past six months have shown us that without tech stocks, the S&P 500 finds it hard to really move higher.”

Despite continued geopolitical tensions in the Middle East and high oil prices keeping inflation sticky, market risks have not disappeared, but investor confidence has clearly picked up. Paul Wick, CIO of Seligman Investments, characterized this rebound as “catch-up trades” and “positioning trades,” believing it partly reflects a technical correction after previous overselling.

Valuations fall, tech stocks regain appeal

An important backdrop to this rebound is that the Mag 7’s valuations have become much more reasonable after a significant correction. Excluding Tesla’s extremely high valuation, the Mag 7’s current P/E ratio is about 24 times expected earnings, down from 29 at the end of last October, and the gap with the S&P 500’s approximate 21 times valuation has narrowed sharply.

For example, Microsoft's current share price corresponds to 23 times expected earnings, not only lower than the 33 times at October 28, but also below its ten-year average of 27. Even after its strongest weekly gain since April 2015, Microsoft's price is still 22% below its historic peak in October.

Kwon pointed out that this relatively lagging performance makes hyperscale cloud computing companies attractive “catch-up targets” in the current market. Many missed this rebound and are thinking about what to chase next, and hyperscale cloud companies look like a more appealing choice.

Hedge funds sell off, divisions persist

Despite the strong rebound, internal market divisions remain unresolved. Just two weeks ago, according to data from Goldman Sachs’ prime brokerage, hedge funds sold US tech stocks at the fastest pace in more than five years, with net outflows in almost all tech sub-sectors. Software accounted for about 60% of net sell volume, nearly all driven by short-selling.

Meanwhile, concerns about tech giants’ continued ramp-up of AI capital spending have not fully dissipated. According to Bloomberg data, Amazon, Microsoft, Alphabet, and Meta are expected to collectively invest more than $618 billion in capital expenditures in 2026, up sharply from $376 billion in 2025.

Growth prospects for Microsoft’s cloud business, heavy capital spending, and the potential impact of AI startups like Anthropic on its software business remain core concerns suppressing its valuation.

AI return expectations improve, earnings growth supports confidence

However, many market participants believe the pessimistic narrative around AI investment returns is quietly changing.

Wick, an analyst at Seligman Investments, said positive progress at Anthropic and cases like Block using AI for efficiency gains and layoffs are prompting investors to reconsider the commercial potential of AI. “I think these are making investors start to think that maybe AI really will deliver substantial returns.”

In terms of earnings expectations, according to Bloomberg Industry research data, Mag 7’s expected earnings growth this year is 19%, higher than the 17% for the rest of the S&P 500 components. This gap is expected to widen further in 2027, with Mag 7 earnings growth reaching 22%, while the rest of the S&P 500 is expected at 15%.

Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions, said concerns about capital return rates and capital expenditures suppressing cash flow are fading. “These companies’ current business remains highly profitable and generates massive cash flow, which truly establishes their status as defensive assets in the market.” Kwon predicts the S&P 500 will reach 7,300 this summer, about 2.4% above the closing price last Friday.

Risk Warning and DisclaimerThe market has risks; investment requires caution. This article does not constitute personal investment advice and does not take into account individual users’ specific investment objectives, financial circumstances, or needs. Users should consider whether any opinions, views, or conclusions in this article suit their particular situation. Invest at your own risk. ```