BlackRock's Koesterich: Tech Rally Rests on Earnings, Not Hype

Russ Koesterich, who manages BlackRock's Global Allocation Fund, said the technology sector's recent rally is grounded in earnings and valuation, not speculative momentum. In a note published this week, he argued that shifting expectations for interest rates and economic growth have created a setup where strong corporate results can justify higher stock prices.

The rally has pushed the tech-heavy Invesco QQQ Trust (QQQ) up roughly 12% over the past two months. Koesterich pointed to earnings reports that have consistently beaten analyst estimates. Revenue growth across the largest tech companies has accelerated, and margins have held up better than many forecasters expected. That combination, he said, distinguishes this move from the 2021-2022 cycle, when multiples expanded faster than profits.

Valuations are a second pillar. The sector's forward price-to-earnings ratio, while above its 10-year average, remains well below the peak multiples reached in late 2021. Koesterich described current levels as historically reasonable when measured against the quality of earnings and the cash-flow generation of the largest names. He did not cite a specific target multiple. The implication is that the market is not yet pricing in perfection.

The better market read is not that tech is cheap. It is that the bar for disappointment has risen. If the next round of earnings fails to deliver the same beat rates, the same stocks that led the rally could face a sharper correction than the broader market. Koesterich's framing puts the onus on the next two reporting cycles. The first test comes in mid-July, when several mega-cap tech companies report.

One risk he did not dwell on is interest rate sensitivity. The tech rally has coincided with a drop in long-term bond yields. If yields reverse higher on stronger economic data or a hawkish Federal Reserve surprise, the valuation argument weakens quickly. The 10-year yield falling below 4.2% was a tailwind. A move back above 4.5% would test the thesis.

Koesterich's view is grounded in what has already happened. The forward-looking question is whether the fundamentals can sustain the rally through the second half. Earnings guidance from the consumer-facing tech names will be the next data point that gives traders a read on that question. The stock market analysis framework suggests watching forward revenue guidance more closely than headline EPS beats, because guidance captures the demand trajectory that matters for multiple expansion.

The rally has rewarded believers. The next move depends on whether the earnings engine keeps running.