Deutsche Bank: Tech Stocks Still About 5% Away from Long-Term Trend Bottom
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Deutsche Bank says tech's relative performance versus the rest of the S&P 500 is still about 5 percentage points above its long-term trend channel floor — suggesting the current pullback may not be over, though historically that floor has often marked a turning point.
Why does Deutsche Bank say tech hasn't finished falling?
Two weeks ago Deutsche Bank cut tech and large-cap growth from "overweight" to "neutral", citing severely skewed risk-reward.
Since then tech has dropped roughly 7% while the rest of the S&P 500 gained about 5% — a gap of ~12 percentage points.
Tech's relative performance has entered the lower half of its long-term trend channel but remains ~5 pp above the floor. This means → if history is any guide, there is still room to fall.
What happens when the channel floor is reached?
Historically, the trend channel floor has repeatedly served as a reversal point for tech's relative performance.
In the past five sector rotations, tech briefly broke below the lower rail twice — during the tariff shock and the US-Iran conflict.
In plain terms = barring an external shock of similar magnitude, tech is more likely to stabilize near the channel floor than to crash through it.
How far have institutional positions dropped?
Institutional tech allocation has fallen from near the 85th percentile in early October to the 33rd percentile now, close to its US-Iran conflict low.
Active-manager positioning dropped to the 18th percentile, the lowest in over a month; systematic strategies remain at the 79th percentile.
Small-cap allocation slid to the 12th percentile, the largest underweight since April 2023. This reflects a rapid institutional retreat from high-beta names.
Bottom-fishers have arrived — but are they committed?
Over the past two weeks, tech funds saw net inflows of roughly $30 billion, with about $12 billion flowing into leveraged ETFs — a sign some investors are buying the dip.
Yet on the most recent down day, daily flows flipped to a net outflow of about $1.5 billion. This means → the appetite to buy the dip exists, but conviction is fragile — one drop and the money pulls back.
Deutsche Bank's read: sustained outflows could extend the correction; a sentiment rebound could accelerate a snapback just as quickly.
What will it take for tech to stabilize?
Deutsche Bank names earnings delivery as the key test. The prior two rebounds from the channel floor both coincided with strong results during earnings season.
Current positioning implies an earnings growth expectation of roughly 10%, far below the market's forecast of about 65% year-on-year Q3 profit growth. In plain terms = positioning is already pricing in a sharp growth slowdown — if earnings prove growth is intact, there is room to re-rate.
But Deutsche Bank cautions: the market's real worry is medium-to-long-term profit growth. If earnings cannot dispel that concern, strong near-term results alone may not be enough. The bank maintains its S&P 500 year-end 2026 target of 8,000, implying 2026 EPS of $358 and 2027 EPS of $420.
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