Deutsche Bank says Mega-Cap Growth and Technology shares have staged a rebound after falling to the lower bound of their decade-long performance channel relative to the rest of the S&P 500. The firm attributes the earlier weakness to a three-month rotation away from the sector, and reports the market has since pushed the groups off that channel bottom.
According to Deutsche Bank strategist Parag Thatte, the selloff that began after Q3 earnings season broadened in November 2025 affected a wide range of companies. Thatte noted the move did not discriminate cleanly between companies potentially disrupted by artificial intelligence and those set to benefit from AI-driven spending - including chipmakers.
Despite the market pullback, forward earnings estimates for Mega-Cap Growth and Technology companies actually rose over the course of the most recent earnings season. Deutsche Bank reports forward estimates increased by 2.0% for 2026 and by 2.6% for 2027. The bank also highlights that Technology earnings growth remained strong, running close to 30% in Q4 2025.
The bank points to a significant repositioning of portfolios: investors shifted out of tech and large-cap names into other parts of the market, including small caps. That repositioning, Deutsche Bank says, already assumes a sharp slowdown in the pace of earnings upgrades for the sector.
Fund flows underline the scale of the move. Sector funds excluding technology saw inflows of $62 billion in the first five weeks of 2026 - an amount the bank says exceeds what those funds received in all of 2025. Meanwhile, technology fund inflows, which had slowed markedly over the prior two months, ticked up from $4 billion to $6 billion in the most recent week.
Context and implications
Deutsche Banks analysis frames the recent market action as a technical rebound from a long-running relative channel, with fundamentals in the form of forward earnings estimates showing modest improvement during earnings season. At the same time, positioning and flows reflect investor caution and rotation across market caps and sectors, leaving the pace of future upgrades and the sustainability of flows as focal points for market participants.