S&P 500 gained for seventh straight day on Thursday but this segment sold-off again

The S&P 500 gained for the seventh straight day on Thursday, April 9, as investors monitored the ongoing ceasefire between the US and Iran in West Asia. The Dow Jones also gained for the second day running.

However, one segment on Wall Street faced selling pressure yet again, owing to its familiar bugbear. It was the software companies.

Shares of Salesforce and Adobe were down between 3% to 4%, while ServiceNow shares fell as much as 8% at the close of trading on Thursday. Shares of other companies such as Oracle Corp, Palantir, and Workday slumped by 4%, 7.3% and 5.1% respectively.

The iShares Expanded Tech-Software Sector ETF (IGV) fell 4%, closing at the lowest level since 2023. The ETF has extended its year-to-date losses to 27%. Another index related to software-as-a-service (SaaS) companies declined nearly 5%, extending its decline for the week to 9% and a year-to-date drop to nearly 40%.

The latest concern for these stocks is the new Anthropic launch called Claude Managed Agents, which is still not open for public use. Additionally, Meta also unveiled a new AI model.

Known investor Michael "big short" Burry wrote on his social media handle that its "probably worth following Claude if you are an investor in these markets," attaching a chart showing the software sell-off.

On the flip side, there are views of the sell-off being overdone as valuations are well below their long-term average. An index tracking these companies now trades at 20.6 times its estimated earnings, compared to a ten-year average of 34 times.

"We have a threat in the environment that wasn’t there before, and expectations for growth going forward have been dashed on the rocks," said Kevin Caron, co-chief investment officer at Washington Crossing Advisors.

"While there are some long-term concerns, the situation for this year and next still looks relatively solid, and meanwhile software balance sheets are incredible, with very little debt and a lot of cash," said Caron, who helps oversee about $11 billion in assets.

(With Inputs From Agencies)