In global markets on Monday, a clear shift took place as investors reassessed the lofty valuations of technology stocks and dialled down expectations ahead of a key corporate earnings season. New insights from leading strategist Julian Emanuel at Evercore ISI show that market sentiment toward big tech has cooled significantly, creating both caution and opportunity for investors in what has been an unpredictable start to 2026.
According to MarketWatch, the S&P 500 index has struggled to break past 7 000 points, weighed down by a cluster of mixed earnings results from U.S. companies. These results are falling short of long-term trends, with 75 per cent of firms beating earnings per share estimates so far, compared with a five-year average closer to 78 per cent. This divergence reflects growing unease among investors who have enjoyed years of tech-driven leadership in markets.
Now big technology firms like Microsoft, Meta, Tesla and Apple are about to unveil their latest earnings, and analysts say how those numbers land could shape the second half of the year. Together, these names make up more than 16 per cent of the S&P 500’s market value, giving them outsized influence on overall market direction.
Even with a subdued mood, some market watchers see room for optimism. Emanuel says that sentiment is now among the most cautious it has been throughout the long run of the artificial intelligence-led bull market. In his view, this could be a positive setup compared with last season, when overly high expectations led to sharp selloffs when results failed to meet hopes.
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Why Caution Is Growing and What It Means for Investors
Investors have been nervous, especially around software companies, as concerns build that artificial intelligence might disrupt current business models instead of boosting them instantaneously. This nervousness has helped pull down valuations across parts of the tech sector, particularly software stocks. Emanuel notes this has driven the information technology sector to its lowest valuation premium relative to the broader market since the pandemic era.
That lowered valuation reflects a broader rotation in equities where growth-oriented names tied to innovation and future prospects have come under pressure, while more traditional or defensive sectors quietly attract fresh capital from investors looking to reduce risk.
At the same time, concerns over extended valuations and slower adoption of new technologies have raised questions about whether the recent run in AI stocks can continue unabated. Emanuel acknowledges there are many reasons for caution, including potential systemic risks in the vast infrastructure spending tied to AI core builds. Yet he also believes market pricing has over-discounted these issues, creating areas where risk and reward might favour buyers.
Strategic Moves as Tech Sentiment Cools
For investors who remain bullish on technology, Emanuel suggests some tactical ways to play the current environment while keeping costs down. One of the strategies involves using options, specifically a bullish risk reversal. This trade combines selling a put option with buying a call option to gain exposure to stocks without committing too much capital up front. When used judiciously, this approach can help investors stay invested while managing near-term risk.
In Emmanuel’s view, several of the large tech firms that face upcoming earnings reports are candidates for such trades. Microsoft, Meta and Apple are among those he highlights as potential targets for bullish option strategies. These kinds of trades appeal to those who hold the view that, despite the market’s caution, earnings beats or guidance improvements could reignite interest and push prices higher.
Beyond these core names, Emanuel’s strategy also points to opportunities among so-called hyperscalers, such as Amazon and Alphabet. These companies have underlying businesses that remain powerful in cloud computing and digital advertising, and their upcoming earnings could set the tone for the broader market.
Emanuel also singles out stocks with historically high short interest relative to their trading ranges, including Qualcomm, Skyworks Solutions and Fortinet. High short interest means many traders are betting against those stocks, and if sentiment improves or earnings surprise to the upside, these names could see exaggerated rebounds.
What Investors Should Watch Next
Markets now face several key catalysts that could determine direction beyond the tech earnings season. Durable goods orders in the U.S. have recently risen more than expected, hinting that economic activity holds resilience even as tech valuations falter. Meanwhile, investors are watching closely for the next Federal Reserve interest-rate decision and news around leadership at the central bank. These macroeconomic signals could shift risk sentiment across all sectors, including technology.
The current cool-off in tech stocks ought not to be viewed simply as a bearish sign. For long-term investors, the pullback may represent a chance to build positions at prices closer to historical averages, and for traders, it has already sparked discussions around rotation into other sectors that have been overlooked.
What remains clear is that tech stocks will remain at the centre of market attention. Whether cautious sentiment continues or gives way to renewed momentum will depend heavily on corporate results and broader economic cues in the weeks ahead.
Understanding this evolving landscape and applying thoughtful strategies can help investors navigate the current phase where the market cooled on tech stocks.
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