In what should be a surprise to no one, energy has been one of the better performing sectors since the joint U.S.-Israel airstrikes on military targets in Iran on February 27, although it has given up some ground since a two-week cease fire was announced last week. The S&P 500 is up slightly during this period (+1.2%) while the energy sector has gained 0.4% (price appreciation, excluding dividends).
What may surprise you is that gain is only good enough for fifth place in the sector rankings since February ended. Technology is on top with a 5.9% gain. Technology beating energy during an oil price spike is surprising enough, but it comes amid selling pressure in the software industry due to fears of artificial intelligence (AI) disruption. The application software group is down about 5% and some widely held names like Salesforce (CRM) and Workday (WDAY) are down more than 10%.
How Surprising Is This Technology Strength?
How surprised should we be by this strong performance from technology? Not much, based on the following analysis. Using a hypothetical study of sector performance during oil price spikes over 30%, we find that energy fares best (no surprise). But technology was second in this hypothetical scenario, suggesting that the sector’s relative strength during this period is not an outlier. Technology companies are not a heavy oil users, mitigating the effects of higher oil prices.
Read more: The Economy Takes Multiple Shocks in Stride
Energy Estimates Have Popped, But the Technology Estimate Increases Aren't Too Shabby
The next question you might ask is whether the strong performance by the technology sector is justified by fundamentals. Fueled by the AI buildout, the technology sector will likely grow earnings at least 44% year over year for the soon-to-be-reported first quarter (source: FactSet). But a strong growth outlook didn’t help sector performance from November 2025 through January of this year when technology underperformed.
We would argue technology strength is justified based on the improvement in the earnings outlook in recent weeks. As shown in the accompanying chart, earnings per share (EPS) estimates for technology in 2026 have increased by more than 6% since March 1. Earnings were expected to grow at a strong clip, but analysts again underestimated the sector’s earnings power. Excellent earnings growth has been anticipated, but we don’t think the market was prepared for a possible 50% increase in technology earnings in the first quarter.
Tech Sector Valuations Have Become Attractive, If Not Compelling
We also believe recent strength in technology is justified by attractive valuations. The underperformance late last year and early in 2026, coupled with booming earnings growth, brought the sector’s forward (next 12 months) price-to-earnings ratio (P/E) down to near the market at the recent lows. The latest bounce leaves the sector at about an 8% premium to the S&P 500 forward P/E, about in line with the long-term average and still attractive given the strong outlook for earnings growth and robust profit margins.
Conclusion
Technology’s leadership during an oil shock is not particularly unusual, nor is it unjustified. History shows technology tends to perform well during periods of sharply rising energy prices, and today’s fundamentals appear consistent with that pattern, though past performance does not guarantee future results. Improving earnings expectations, driven largely by the AI buildout, have helped restore investor confidence after a period of underperformance. At the same time, valuations remain reasonable relative to both the market and the sector’s history. Technology appears well positioned to remain a relative winner if earnings momentum continues and is a strong candidate for an upgrade on a tactical basis.
EPS stands for earnings per share. This metric tells investors how much money a company makes for each of its shares. EPS is one of the most common ways to gauge a company’s profitability.
Jeff Buchbinder, CFA, provides the top-down view of the stock market for LPL Financial Research. He has over 25 years of experience in equities.
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