U.S. stocks staged a sharp rebound last Friday, with the Dow Jones Industrial Average surpassing 50,000 points for the first time and the S&P 500 rising nearly 2%, marking its best single-day performance since May of last year. NVIDIA surged 7%. Is this merely a dead-cat bounce, or the start of a new upward trend?

According to market analysis, Deutsche Bank AG stated in its latest research report that the key characteristic of this sell-off is that earnings expectations have actually continued to be revised upward. The market decline was entirely driven by valuation compression, rather than a deterioration in fundamentals. Friday's rebound may signal a reversal in sentiment.

Meanwhile, fund flow data indicates that the extremely crowded trade in non-tech sectors is showing signs of fatigue, while inflows into the technology sector are beginning to recover.

**Rebound from the Decade-Long Channel Bottom**

This rebound in tech stocks is not accidental. The report notes that over the past three months, funds have fled large-cap tech stocks en masse, flowing into other sectors. The trigger was the Q3 2025 earnings season—when the market first saw signs of earnings growth broadening beyond the tech giants.

However, Friday's rebound may mark a shift in sentiment. Deutsche Bank AG stated:

The performance of large-cap growth and technology stocks relative to the rest of the S&P 500 fell from the top of their decade-long outperformance channel in late October to the bottom by Thursday's close, before rebounding on Friday.

Such sharp volatility is not unprecedented. Analysts compare it to the market reaction following last year's "Deepseek announcement," concerns over slowing earnings growth in July 2024, or even the capital expenditure digestion period in 2018.

**Valuation Compression, Not Earnings Deterioration**

Most notably, this sell-off was essentially a "vote of no confidence" in the sustainability of earnings, rather than a decline in earnings themselves. Unlike the prolonged bear market in 2022, which was driven by a 17% year-over-year decline in earnings, the fundamentals of tech stocks remain strong today.

Deutsche Bank AG emphasized a fact that contradicts market sentiment:

Despite the heavy market losses, forward earnings expectations for large-cap growth and tech stocks have actually increased this earnings season (with 2026 expectations raised by 2.0% and 2027 by 2.6%). Even the software sector has seen upward revisions.

This indicates that this year's market performance has been entirely driven by multiple compression, in stark contrast to last year's rally, which was fueled solely by earnings revisions.

**Extreme Reversal in Fund Flows**

Positioning data reveals dramatic shifts in investor sentiment. While overall equity positioning has been range-bound at moderately overweight levels, internal rotation has been exceptionally fierce. Funds are moving away from large-cap tech stocks and betting instead on small-caps and other sectors.

Even more striking is the frenzy of inflows seen earlier this year. Deutsche Bank AG reported:

Sector funds excluding technology absorbed a record $62 billion in the first five weeks of the year... an inflow rate nearly four standard deviations above historical averages.

Particularly notable were materials stocks, where inflows were more than five standard deviations above average.

However, the tide appears to be turning. Data this week shows that inflows into non-tech sectors are slowing, while inflows into tech stock funds are beginning to pick up (increasing from $4 billion last week to $6 billion this week). When extremely crowded trades begin to unwind, it may be a signal for contrarian investors to step in.