Blue Line joins the bullish US stock camp: tech sector falls out of the "golden pit," software stocks have the greatest potential for excess returns

Zhitong Finance APP learned that Bill Baruch, head of investment business at asset-management giant Blue Line Capital, believes that after the recent market turbulence, the U.S. software industry holds a huge opportunity. He believes that software giants such as ServiceNow (NOW.US), Oracle (ORCL.US), and Microsoft (MSFT.US), which have been hit hard since February under the gloomy narrative that “AI will disrupt everything,” are attractive investment targets at their current price levels. In an interview, Baruch expressed a bullish outlook for the broader U.S. stock market, while specifically calling out technology stocks that were unfairly punished during the recent selloff wave.

Baruch said that after Federal Reserve Chair Jerome Powell indicated that the central bank would not raise rates due to an oil shock, market sentiment underwent a sharp shift. He noted that when the VIX index is testing near levels, “pessimism reaches its peak,” but afterward the market’s “pulse” becomes more positive.

Baruch said: “The situation looked pretty bad on Monday night, but then things turned around.” He also added that although negative news has kept coming, the market has already shown resilience.

From a technical perspective, Baruch views the 6600 level on the S&P 500 as a key support area. He believes that if the index can hold this level, it could move higher toward 6800, close to the 200-day moving average line. The strategist said that if oil prices fall by $10, the S&P 500 could “just need a piece of good news” to rise by 300 points.

Baruch pointed out that the market has shown “divergence.” Even though software stocks have inherent value, they have been “hit hard.” “Some very excellent companies in the software space have been hit hard,” he said, adding that as the market begins to rebound, he is watching the new leaders.

His top picks in the software sector include ServiceNow, Oracle, and Microsoft. He believes these stocks’ current share prices are “extremely good value.” Blue Line Capital
believes that these areas have the greatest potential to deliver excess returns.

Ahead of the recent market changes, Blue Line Capital recently deployed half of its 8% cash reserves to buy software stocks. Baruch explained that in typical geopolitical situations, he prefers to hold cash to look for acquisition opportunities, but the value of undervalued software is too tempting to ignore.

If oil prices fall and positive news emerges, he believes that “April and May could be very interesting,” and that momentum could carry into June.

Earlier, the veteran strategist Ed Yardeni also said that after U.S. tech stocks pulled back from last year’s historical highs, they have returned to attractive levels for investors willing to make long-term investments.

Meanwhile, Wells Fargo also believes that investors at attractive valuations in information technology stocks. Wells Fargo Investment Research has raised its rating for the sector from “neutral” to “overweight,” citing that the sector has underperformed the S&P 500 and that the widespread application of artificial intelligence supports its solid development outlook.

The company’s global investment strategy team said that although concerns remain about valuations, capital expenditures, and the disruptive impact brought by artificial intelligence, the fundamentals of the information technology industry remain strong. They cite double-digit earnings growth in the fourth quarter as an example. The strategists also noted that since the outbreak of the Iran-Iraq war, the information technology industry has outperformed the S&P 500 index, highlighting the sector’s long-term growth and quality characteristics.