The script for 2026 has been flipped.
After months of investors rotating into value stocks and small caps, the escalating conflict in Iran has abruptly triggered a flight back to the comfort of the familiar. With oil prices CL.1 BRN00 briefly topping $100 a barrel, megacap technology names are back in the spotlight — this time not as growth leaders, but as a port in the storm during an increasingly chaotic period for global markets.
Last week saw software stocks and some members of the so-called Magnificent Seven group of tech names, including Microsoft Corp. MSFT, climb, helping to offset weakness elsewhere in the market as the rotation trade that had defined U.S. equities in early 2026 slammed into reverse.
The iShares Expanded Tech-Software Sector ETF IGV rose 7.9% last week and logged its best weekly gain since April 25, 2025. The S&P 500’s information-technology sector XX:SP500.45 took on modest losses, but it still outpaced the broader market as the second-best performer on the large-cap benchmark index, according to FactSet data. The top performers were energy stocks, which tend to benefit from higher energy and natural-gas prices.
That trend appears to be carrying into this week, with the information-technology sector the best performer on the S&P 500 on Monday, up 1.8%, while the large-cap index SPX rose a modest 0.8%, according to FactSet data. The tech-heavy Nasdaq composite COMP popped 1.4%, while the Dow Jones Industrial Average DJIA ended up 0.5%, according to FactSet.
“One aspect of last week’s market action that may be worth watching this week was the tech sector’s relative strength. If it holds up again this week, it could be a steadying influence on the broader market,” said Chris Larkin, managing director of trading and investing at E*Trade from Morgan Stanley.
See: Defense-tech stocks are the hot trade as Iran conflict widens
Technical indicators also point to further upside for IGV, which finished at $87.71 on Monday afternoon, reinforcing the near-term strength in software stocks. The chart below shows that IGV has held “a long-term support level,” so there’s room for it to move back toward the $95-$100 range, according to Jonathan Krinsky, chief market technician at BTIG.
Indeed, a relief rally in tech stocks, especially software names, could help cushion the broader market from further downside as tensions in the Middle East continue to rattle investors. But the rebound may not be strong enough to push equities to new highs, with the software sector still grappling with disruption risks from rapidly evolving artificial intelligence, according to Jay Woods, chief market strategist at Freedom Capital Markets.
“Now these growth names have become value names, and we’re going to see a shift into some of those bigger tech names, but it’s not going to be one of these shifts where we break out to new highs,” Woods told MarketWatch via phone on Monday. “lt’ll just stabilize the market, but the AI disruption is still the story to focus on,” he said.
Woods added that cheaper valuations for some of those tech stocks could also make them attractive during times of choppy trading.
Looking ahead, investors have more than just developments in the Middle East to consider: Trump administration announcements and the G-7 meetings on the potential emergency release of oil reserves will be worth monitoring. Earnings from two major software giants are also on deck this week.
Oracle ORCL is scheduled to release its quarterly earnings on Tuesday afternoon, followed by Adobe ADBE on Thursday after the closing bell.
See: Oracle faces a high bar for earnings as investors look for an AI payoff
Oracle and Adobe are two of the largest software companies that have been impacted by the AI disruption so far this year. Their shares were down 22.2% and 19.3% in the year to date through Monday, respectively, according to FactSet data.