Adding Software $IGV to top sector ideas along with $MAGS $IBIT $ETHA. If correct, private credit risks diminishing

The S&P 500 is up +0.6% so far this week, impressive considering the stalled progress on US-Iran talks and the fact that oil is up ~20% in the past week or so. To us, this is a reminder that the fundamentals of the US economy and S&P 500 earnings have strengthened since the start of the year. And Technology/ MAG7 have largely recovered their losses from the start of the year. Today, we are adding software (ETF ticker: $IGV) to be among our top sector picks:

  • The case for being long software is as follows:
    - software has reversed its entire relative performance since April 10, 2026
    - the industry's share of revenue has compounded at 2X the rate of S&P 500 2016-now
    - AI is a threat to many business models, and the software sector will need to evolve
    - but the best software companies will dynamically adjust and arguably leverage AI
    - the bearish argument to software (AI eats software) is the equivalent of saying
    - AI will hurt American biz, and then assume US corporates will not adapt
  • The top 5 software stocks today are:
    - Microsoft $MSFT
    - Alphabet $GOOGL
    - Amazon $AMZN
    - Salesforce $CRM
    - Adobe $ADBE
  • Thus, we believe the risk/reward for software is asymmetric for the next 12-24 months and given that consensus is cautious, makes us believe the stronger companies will surprise to the upside. Thus, we would want to be overweight the sector into year-end.
  • We are not calling for a V-shaped recovery for software stocks. But the setup is favorable. Recall, we were constructive on small-caps in late-2024/most of 2025 but the small-cap outperformance only just commenced in late-2025. So our calls can take some time to play out.
  • If we are correct and software equity value is set to recover, this mitigates the downside risk for private credit sector. Private credit and the surge in redemptions reflects investor apprehension about the future of software.
    - if we are correct, software debt is better than consensus believes
    - the underwriting capabilities of private credit are probably better than markets perceive
  • This is positive for companies like:
    - Blue Owl $OWL $OBDC
    - Blackstone $BX
    - Apollo $APO
    - Ares $ARES $ARCC
    - KKR $KKR $FSK
  • This week is the April FOMC on Wednesday, along with the March PCE Release on Thursday:
    - 4/27 Mon 10:30 AM ET: Apr Dallas Fed Manuf. Activity Survey -2 vs 1e
    - 4/28 Tue 9:00 AM ET: Feb S&P Cotality CS 20-City MoM SA -0.05% vs 0.20%e
    - 4/28 Tue 10:00 AM ET: Apr Conference Board Consumer Confidence 92.8 vs 89e
    - 4/28 Tue 10:00 AM ET: Apr Richmond Fed Manufacturing Survey 3 vs 1e
    - 4/29 Wed 8:30 AM ET: Mar P Durable Goods Orders MoM 0.8% vs 0.5%e
    - 4/29 Wed 2:00 PM ET: Apr FOMC Decision No Change
    - 4/30 Thu 8:30 AM ET: Mar Core PCE MoM 0.29% vs 0.27%e
    - 4/30 Thu 8:30 AM ET: 1Q ECI QoQ 0.9% vs 0.8%e
    - 4/30 Thu 8:30 AM ET: 1Q A GDP QoQ 2.0% vs 2.3%e
    - 5/1 Fri 9:45 AM ET: Apr F S&P Global Manufacturing PMI 54.0e
    - 5/1 Fri 10:00 AM ET: Apr ISM Manufacturing PMI 53.2e
  • Next week key employment data is released, with the March JOLTS on Tuesday and the April Non-farm Payrolls on Friday:
    - 5/4 Mon 10:00 AM ET: Mar F Durable Goods Orders MoM   
    - 5/5 Tue 8:30 AM ET: Mar Trade Balance    -60be
    - 5/5 Tue 9:45 AM ET: Apr F S&P Global Services PMI   
    - 5/5 Tue 10:00 AM ET: Apr ISM Services PMI    53.7e
    - 5/5 Tue 10:00 AM ET: Mar JOLTS Job Openings    6700ke
    - 5/5 Tue 10:00 AM ET: Mar New Home Sales    668ke
    - 5/7 Thu 8:30 AM ET: 1Q P Nonfarm Productivity QoQ   
    - 5/7 Thu 8:30 AM ET: 1Q P Unit Labor Costs   
    - 5/7 Thu 11:00 AM ET: Apr NY Fed 1yr Inf Exp   
    - 5/8 Fri 8:30 AM ET: Apr Non-farm Payrolls    60ke
    - 5/8 Fri 10:00 AM ET: May P U. Mich. 1yr Inf Exp
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