After 35% Slide, Software Rallies — Dan Niles Invokes Wall Street Adage 'Narrative Follows Price'
iShares Expanded Tech-Software Sector ETF (BATS:IGV) is up every day this week, gaining 1.64% to $85.50 on Wednesday. Dan Niles of Niles Investment Management says the pattern is hard to ignore.
Software Reverses Hard After Historic Slide
IGV fell 35% between Sept. 22 and Feb. 23. Over that same stretch, the S&P 500 as tracked by State Street SPDR S&P 500 ETF Trust (NYSE:SPY) gained 2%.
Now the tide appears to be turning. IGV has risen every session this week. It has also closed higher than it opened for seven straight trading days, on elevated volume.
Niles Flags the Pattern — And the Adage
“On Sunday I wrote, ‘I believe that the 1% bounce in the $IGV last week despite the above big picture reasons that could have driven it down further, makes a continuation of that bounce potentially likely,'” Niles wrote.
He noted the rally persisted even as geopolitical risk from Iran added fresh headwinds this week.
Niles invoked a classic market saying to explain the move: “I am a big believer in the old Wall Street adage ‘narrative follows price.'”
Bear Market Rallies Can Be Violent
He pointed to the dot-com bust as a reference, noting that the S&P 500 staged seven rallies averaging 14% each over roughly two months, even as the broader market fell 49% over two and a half years.
“Also some of the largest rallies are during bear markets,” Niles added. “Even if you believe that we are in a period for the AI trade akin to the bursting of the internet bubble this would still apply.”
These Software Niches Could Fare Best
Niles identified sectors he thinks will emerge strongest after the current AI shakeout.
“I think certain software sectors like database, security and high production cost gaming software will fundamentally fair the best on the other side of the shakeout in software,” he wrote.
That view aligns with broader analyst sentiment around cybersecurity. Wedbush’s Dan Ives argued last week that Anthropic‘s move into security with its Claude Code tool validates — not disrupts.
No Bottom Call — But No Reason to Dismiss the Rally Either
Niles was careful not to overstate his conviction.
“To be clear, I do not think the software sector has seen THE bottom yet as agentic AI use cases continue to ramp,” he wrote.
He closed with a nod to Mark Twain: “History may not repeat itself but it often does rhyme.”
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