Market volatility continues apace, as news headlines, and even simple statements or policy hints, have shown the ability to move markets quickly in both directions. This kind of short-term volatility can feel like it carries greater meaning in the moment. But it doesn’t always tell us much about what is happening beneath the surface. In fact, it often gives investors the wrong message.1
My case-in-point this week: the growing gap between the market’s largest growth stocks and the broader index. As shown below, the once-heralded names in Technology and the “Magnificent Seven” have declined significantly more than the S&P 500 overall in 2026, with drawdowns approaching three times the magnitude of the broader market.
This divergence is notable not just because of the size of the move, but because of what is happening on the fundamental side at the same time.
‘Mag 7’ and Tech represent the largest growth-oriented segment of the market, and they continue to deliver the strongest earnings growth in the index. The Technology sector, broadly defined, is expected to produce earnings growth of more than 25% in the first quarter on over 20% revenue growth. By comparison, total S&P 500 earnings are expected to rise in the low double digits, and closer to mid-single digits if you exclude Technology’s contribution.
In other words, the sector doing the most to drive earnings growth is also the one experiencing the most pronounced selling pressure.
In fairness, some of this may reflect valuation concerns. Large-cap growth stocks entered the year trading at elevated multiples, and in periods of uncertainty, investors often trim exposure to the most expensive areas of the market first. There are also legitimate questions about how artificial intelligence may reshape competitive dynamics over time, particularly across software and digital platforms. But even taking those factors into account, the magnitude of the recent move appears disproportionate to what we are seeing in current earnings data. If anything, the disconnect suggests that expectations are being reset more quickly than fundamentals are deteriorating. In my experience, that’s a classic sign of a correction, not the beginning of a bear market.
The earnings revisions trend reinforces my argument. Since the start of the year, estimates for the Technology sector have continued to move higher, even as stock prices have come under pressure. The positive earnings revision trend has not been isolated to one corner of the market either, as roughly half of all sectors have seen upward estimate revisions since March, including Financials, Materials, and Industrials. This is not what we typically see in an environment where markets are pricing in a broad earnings slowdown.
Periods like this also tend to reward a disciplined, earnings-driven approach. Corrections driven by sentiment and positioning tend to feel uncomfortable in real time, particularly when leadership is involved, but they often unfold without the kind of broad-based deterioration that typically defines more severe downturns. Strategies that emphasize earnings growth, estimate revisions, and diversification get rewarded most when markets recover.
Bottom Line for Investors
The recent underperformance of large growth stocks is a notable development, but it is important to understand what I believe is driving it. While valuations and longer-term growth expectations are being reassessed, the underlying earnings picture remains relatively strong, with positive revisions across multiple sectors. That combination points more toward a shift in sentiment and positioning than a breakdown in fundamentals.
For investors, it is a reminder that short-term market moves do not always align neatly with earnings trends, and that maintaining diversification across sectors and styles remains critical when leadership changes. It is also worth remembering that when corrections run their course, the areas that were hit hardest often rebound the fastest. For strategies like Zacks Focus Growth, which can create an opportunity to participate when sentiment resets and fundamentals reassert themselves.
1 Zacks.com. March 25, 2026. https://advisor.zacksim.com/e/376582/ook-improving-despite-iran-war/5v9rbd/1502440565/h/pbQqWP-2Yk8SHW9j_XAlA4v4kFANs5-7t3qSo9oDVVk
2 Zacks.com. March 25, 2026. https://advisor.zacksim.com/e/376582/ook-improving-despite-iran-war/5v9rbd/1502440565/h/pbQqWP-2Yk8SHW9j_XAlA4v4kFANs5-7t3qSo9oDVVk
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