High-quality software stocks face repricing amid risk-off rotation

Mega-cap software and healthcare tech are experiencing a harsh repricing as investors reassess valuations in light of rising rates and compressed profit visibility. Year-to-date, the biggest losses in the S&P 500 have not come from small caps or junk equities, but rather from high-quality, brand-name software firms and healthcare innovators. Companies like Elastic Path are down over 5%, with other premium SaaS names such as Datadog and ServiceNow facing even steeper declines. Goldman Sachs data on buybackA company repurchasing its own shares from the open market. constraints shows that S&P 500 share repurchases are expected to grow only 3% this year due to AI capex pressures and economic uncertainty, depriving growth stocks of traditional demand support. Investors are rotating capital toward value names with tangible assets and dividend support, as the riskless rate has climbed in anticipation of sticky inflationThe rate at which prices rise across an economy. from the Iran war. The rotation is being amplified by options expiration dynamics and liquidity squeezes in lower-volume names, creating downward momentumThe empirical fact that winners keep winning over the medium term. that feeds on itself. Skeptics argue that the repricing is healthy and that growth multiples need to compress further if bond yields remain elevated. Others contend that the best-in-class software companies will weather the cycle and eventually benefit from capex normalizing, but timing this inflection remains elusive.