By Jacob Sonenshine

It is no secret that technology stocks have had a rough earnings season. Perhaps the true revelation is that most other sectors are holding up just fine, a positive sign for investors.

Since Jan. 28, when Microsoft's earnings report kicked off a wave of selling in tech, the State Street Technology Select Sector SPDR exchange-traded fund is down about 6%. While some tech companies still have to report -- Nvidia is releasing its results in late February -- the numbers companies have disclosed so far haven't been enough to boost their stocks.

The average tech-stock price movement the trading day after earnings is a decline of about 1%, according to Evercore, even though aggregate earnings for the sector are almost 9% better than analysts expected.

The overarching problem has been that the Big Tech services companies, especially software names, are spending way too much for the market's liking. Amazon.com, Microsoft, and the likes are investing a combined hundreds of billions of dollars annually -- the numbers are rising every year -- as they build data centers for artificial intelligence.

The problem is that managements' forecasts for profits were slightly disappointing, making it look as if the returns on those investments would be too low. It was enough to tank the stocks.

Plenty of nontech names appear in a much healthier place. About two-thirds of constituents in the S&P 500 are in the green for the year, according to FactSet. While the market-cap-weighted index is down 1% since Jan. 28 and up 1% this year, the Invesco S&P 500 Equal Weight ETF has risen about 1.9% since Jan. 28 and 5.4% for the year. It offers a truer representation of the market's health because gains or losses in stocks with enormous market values, such as Microsoft, have the same effect as moves in every other stock.

The nontech sectors are performing relatively well after earnings. While many tech stocks have dropped even after beating both sales and profit estimates, the average stock price move for all companies that outperformed on both lines is a gain of 0.8%.

That is perfectly in line with the five-year average, meaning it is exactly what investors expect if their companies deliver the goods. The majority of sectors in the index -- energy, utilities, healthcare, communication services, industrials, materials, and consumer discretionary -- are gaining.

That shows that as the reporting season began, those stocks were cheap enough to rise in response to strong earnings. The equal-weighted S&P 500 traded at just over 17 times expected earnings for the coming 12 months in early January, while the S&P 500 was at 22 times.

That discount of a little more than five points is relatively large compared with levels for the past five years. It makes sense that as profits came in better than expected, the stocks had room to move higher.

This confirms something important for stock investors. Owning shares at around that valuation level is a solid bet as long as one can envision that profits will grow and that expectations will grow, too.

The best news of all is that the cheapness hasn't vanished, meaning the stock gains haven't lifted the valuation. It is still at just over 17 because as earnings have surpassed estimates, analysts have lifted their projections for sales and earnings a touch, FactSet data show.

The next question is whether earnings can keep growing, continuing to beat expectations. The answer could very well be "yes."

Most importantly, interest rates are down, setting the stage for positive outcomes for profits. With the Federal Reserve having cut rates, short-term borrowing costs are lower than they were last year.

That should help lift consumer and business spending gradually over the coming couple of years. Analysts expect 5% aggregate annual sales growth for the equal-weighted index over the coming two years, according to FactSet.

That can help drive strong earnings growth. Wages and salaries aren't growing much faster than sales, while many of their companies' other costs are fixed. At the same time, AI has the potential to make businesses more efficient.

Analysts expect operating margins to rise a bit over the coming couple of years, helping spur roughly 11% annual earnings growth. In healthy and growing economies, aggregate earnings almost always beat expectations.

Investors looking for their next move can consider buying the equal-weighted index or look at specific sectors where sales and margins are expected to improve. Industrials, consumer discretionary, and healthcare are examples.

This market isn't a bad one to invest in. It's tech that is the panic area.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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February 06, 2026 15:34 ET (20:34 GMT)

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