FidelityNow: Denise Chisholm on how the tech sector is driving U.S. optimism

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I always say volatility is, I'm going to get a little quanty here for a second

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because I like the data. It's an asymmetrical signal,

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meaning that when you see like an elevated VIX or there's high levels of

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uncertainty, that's actually a buy signal historically.

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Again, it goes back to the fact that by the time you've already seen it in the

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data, it's usually priced into the market.

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But that return to what investors call complacency

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isn't usually a bad thing either, meaning when situations

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are certain or when volatility indicators are low, that isn't

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an opportunity to sell stocks historically.

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So we've been sort of gyrating between this very volatile or high VIX

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or high uncertainty regime to a very, quote, complacent

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environment. And when you look at this historically, those are the two best

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situations for equities historically.

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You want that quick reset.

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And that's, I think, what we're living through, which is another way

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to say, in terms of leadership, what you saw in the, I'm gonna call

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it bear adjacent market we saw in April, was a really

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strong reset in what has been sector leadership.

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In U.S. Technology.

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At that low, technology stocks underperformed the S&P

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500 by over a thousand basis points.

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And at that low they were back to median valuation levels.

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We haven't seen anything like that.

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Again, we have the data going back to the 60s.

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We haven't see anything like in the better part of four or five years.

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Now, look, the stocks have re-rated, but not as much as you would think.

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Because although technology stocks are hitting all-time highs, earnings

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growth has continued to grow faster than the rest of

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the market. That means that the stocks aren't nearly as valued

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as heavily as they were just three months ago.

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And that, when you look at the historical data, that's the sweet spot for the

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setup. And again, in my data, that sort of kept me, I would say,

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on the back foot for technology over the course of the last couple years

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is because when you do hang out in the top two quintiles evaluation,

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it's not that it has to be bad for the stocks.

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It's just that you get this asymmetrical situation where the

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fundamentals have to go your way.

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And if the fundamentals don't go your, meaning the stocks don't improve

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earnings or operating margins, then there's more downside historically.

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But based on this big valuation reset, you all of a sudden have much

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better probabilities, even if.

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Margins don't expand, even if profitability isn't what investors

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think it would, which is, again, sort of a mathematical way of saying,

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technology has this really long, rich history of pricing in bad

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news before it happens. So this is what I'm seeing in the data.

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This is what makes me optimistic for the US overall, because technology

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has been such a strong leadership sector.

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So you're seeing this in semiconductors, and you're saying this in software,

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and you're seeing this overall in the technology sector.