Markets Brief: As Earnings Loom, Is the Software Rout Over?

After a week in which stocks set record highs, the markets remain focused on earnings reports, as companies update investors on business conditions and the outlook for the rest of 2026. The Federal Reserve also meets on Wednesday, and market participants expect no change in interest rates. Read on for reporting about whether the software rout is over, Big Tech earnings, how investors behaved in the weeks after the Iran war broke out, and the case for recycled plastics.

Have Software Stocks Bottomed?

Wary eyes are on software this earnings season, as investors attempt to divine whether the industry (especially software application names) is in for more pain. While the tech sector has bounced this month, the outlook for software has been less clear. On April 23, software stocks declined following unexceptional earnings reports from ServiceNow NOW and IBM IBM.

An Overreaction in Software Application Stocks

For decades, software as a service was a reliable story in tech investing, with recurring revenue, low marginal costs, and high switching costs. Then came large-language and agentic artificial intelligence models, such as Anthropic’s Claude, which can independently perform complex workflows across multiple applications.

In response, the market “has taken a chainsaw” to software stocks like Workday WDAY, ServiceNow, Salesforce CRM, Oracle ORCL, and Microsoft MSFT, writes Jim Masturzo, chief investment officer of Research Affiliates. The losses also hit private credit markets that heavily fund SaaS ventures. Masturzo says that was an overreaction. “Mission-critical platforms running complex, regulated, and highly domain-specific workflow systems with years of embedded logic cannot be replicated by a generalist AI model overnight,” he explains.

For now, SaaS firms can still be profitable components of a portfolio. But investors will need to pay close attention to factors like the depth of data moats, the adaptability of pricing models, and workflow depth versus feature depth. “Roughly a third of the point-product SaaS market faces serious displacement risk over the next decade, while deeply integrated, data-rich platforms with genuine workflow ownership are more likely to coexist with than be replaced by AI,” Masturzo says.

Why Software Stocks Might Have Troughed

AI disruption fears “created a sell-now, ask-questions-later environment,” says Adam Turnquist, chief technical strategist for LPL Financial. Now, he thinks software may have found its bottom. He notes that the S&P North American Technology Software Index trades near an enterprise value/estimated sales ratio of only 5.6, marking its lowest level since the bear market lows of 2022.

Meanwhile, “momentum and volume have formed bullish divergences from price action at this stage. Or to make it simpler, momentum and volume are showing evidence of a durable bottom,” Turnquist adds.

What to Watch for in Big Tech Earnings

Analysts will keep a close eye on earnings season, especially within the tech sector, for company commentary on how they’re adapting to AI. For the quarter, software stocks in the S&P 500 tracked by FactSet Research are expected to report 18% earnings growth. Here’s what Morningstar analysts are looking at in Big Tech reports:

• Microsoft reports earnings on April 29. Morningstar analyst Dan Romanoff is looking for direction about capacity constraints at the Azure platform, any “green shoots” from its AI capex after “disappointing” takeup by paying Copilot customers, and “commentary on traditional workloads within AI.”
• Alphabet GOOGL reports earnings on April 29. Morningstar analyst Malik Ahmed Khan expects Search to remain resilient as AI “continues to unlock net new monetizable queries while giving Alphabet more context, enabling better targeting.” He also expects “breakneck growth” in Google Cloud, driven by increased AI spending, enterprise adoption of Gemini, and growing TPU sales to large labs such as Anthropic.”
• Meta Platforms META reports earnings on April 29. Khan expects “another impressive quarter for advertising, with growth near 30%.” He seeks data on Meta’s AI strategy and investments. “We think investors should look for a clear articulation of how AI benefits the broader advertising business, whether through ad targeting, content recommendations, and/or providing tools for creatives,” he says.

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The Real Smart Money

Whenever a shock like the Iran war hits, headlines in much of the financial press can make it sound like investors are running for the hills. But individual investors have tended to hold fast. That can be seen in data from Vanguard Group, which found that 14% of clients traded between the war’s start on Feb. 28 and the announcement of a ceasefire on April 9. Most of that trading happened on just one or two days. But more than the low percentage of clients moving money, Vanguard clients were net buyers rather than sellers of stocks by a nearly 4-to-1 margin. Vanguard says this is no isolated occurrence. During the market turmoil that followed the April 2025 tariff announcements, only 7% made trades, and those investors were buyers by more than a 5-to-1 margin.

With the stock market having more than erased any losses suffered in the early weeks of the Iran war, investors who held steady when the conflict began have (at least for now) been proven correct, as did those who bought the dip. In a discussion last week hosted by the Economic Club of New York that was moderated by Morningstar’s Christine Benz, Vanguard chief executive Salim Ramji called individual investors “the ultimate smart money.”

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Recycled Plastics Prices Look Good, Lifting Prospects for Eastman Chemical

Here’s an Earth Day story: Recycled plastics are starting to look competitive with so-called “new” plastic, which is made from petrochemical feedstocks and whose costs rise and fall with oil. When oil prices were low and stable, particularly during 2015-20, recycled plastic struggled to compete on price. This suppressed demand and constrained investment in collection, sorting, and processing infrastructure, writes Douglas Woodring, founder and managing director of Ocean Recovery Alliance. The pandemic also hampered collection, which put many recyclers out of business.

The oil price surge is changing the math. “This moment represents a rare alignment of market forces, policy pressure, and consumer expectations … Virgin polyethylene (PE), polypropylene (PP), and PET prices are rising and becoming more volatile, eroding the historical price advantage of newly produced plastic. This creates a rare opening for recycled resins to compete not just on sustainability, but on economics,” writes Woodring.

According to market research by Fukutomi Recycling, the price for new ABS plastic (used for enclosures, pipes, and fittings) was about $1,683 per ton on April 10, versus $1,100 for the recycled version. The price of virgin polystyrene was about $1,384 per ton, versus $1,000 for the recycled version. “This is a hot topic,” says Fukutomi CEO Steve Wong. “For many years, the low price of prime resins negatively impacted the recycling industry. Before the oil price [increase], the cost was higher for most of the material plastic after recycling.”

That underscores the value in Eastman Chemical EMN, Dow DOW, and LyondellBasel LYB—all 4-star stocks whose prices don’t reflect the new prospects for recycled plastic, according to Morningstar analyst Seth Goldstein.

Historically, cost has been a barrier to demand and adoption for recycled plastic. “If recycled plastic prices become comparable or lower than virgin plastic due to elevated feedstock costs from high oil and gas prices, then that would be a huge demand increase and benefit Eastman,” says Goldstein.

Last year, Eastman generated around $60 million in EBIT from recycled plastic, or around 6.5% of total profits. The firm is forecasting an additional $30 million in adjusted EBIT this year, around 9% of total profits. “I would expect this to grow to 10%-15% over the next few years,” Goldstein says. That’s not even factoring in higher prices for recycled plastic, which “would accelerate the growth.”