Software stocks price dislocation

What happened: Software stocks experienced a significant downturn in Q1 2026, with the iShares Expanded Tech-Software Sector ETF (IGV) plummeting over 24%, its steepest quarterly decline since Q4 2008. Key players like Salesforce, Adobe, Oracle, and even Microsoft underperformed. This marked the worst relative performance of software stocks against the S&P 500 in the sector's history. Meanwhile, hardware tech stocks remained resilient. The divide between hardware and software stocks, a dominant theme in 2026, persisted even after the Iran war began on Feb. 28.

Market impact: The software sector's price dislocation affected companies with a legacy of high-growth initiatives, such as the market's preeminent software stock, founded in 1975, which saw its shares soar 624,000% since 1986. The weakness in software stocks exposed valuation disparities, potentially presenting a buying opportunity for long-term investors.

What to watch next: On April 27, Microsoft and Alphabet report earnings, providing insights into their software businesses' health. Additionally, the U.S. GDP report on April 28 may offer clarity on the broader economic landscape, which could influence software stocks' performance. Lastly, keep an eye on the 50-day moving average of the IGV ETF, a key technical level that could signal a trend reversal if breached.