Those who make antitheses by forcing words are like those who make false windows for symmetry. – Blaise Pascal
Those who make antitheses by forcing words are like those who make false windows for symmetry.
As highlighted in Sector Concentration in the S&P 500: Digital vs. Physical Sectors, the market entered 2026 with software and other digital sectors still dominant, while energy and other physical sectors remained much smaller in both index weight and market leadership. Then the year began and the sectors switched lanes. Energy, which had done little for much of 2025, started rising almost immediately, while software came under pressure. What stands out is how tightly the two moved against each other. As the year began, when one rose, the other fell.
This changing of the guard did not begin with the Iran war. It started with the new year. We have often observed at DoubleLine that the new year can reshuffle market leadership, and that appears to be the case again in 2026. As the year started, software was already weakening as investors began to worry that AI could undermine the value of established software companies. At the same time, energy started to rally after doing very little for most of 2025. By late March, that shift had become one of the clearest relationships in the market.
The Iran war accelerated that shift and gave it a clearer narrative, but it did not create it. Energy continued to rally through the war and peaked on March 27. That peak came before the April 7 truce announcement. As is often the case, markets turned before the headlines.
Once energy peaked on March 27, the pattern flipped again. Software then rallied sharply. From April 10 to April 17, the S&P Software Industry Index gained 14.3%, its strongest weekly advance since 2001. Notably, it moved back above its pre-conflict level.
One market narrative can quickly give way to the next. The year began with software under pressure as investors worried that AI would damage a large part of the sector. Then the Iran war began, and energy became the market’s preferred expression of that story. But energy peaked before the April 7 truce, and software moved back above its pre-conflict level. That does not prove the old leadership regime has returned, but it does suggest that narrative and positioning drove more of this move than many investors were willing to admit at the time.
Between the Lines is a weekly blog by DoubleLine Portfolio Managers Sam Garza, Joseph Mezyk and Quant Analysts Fei He, CFA and Sunyu Wang that breaks down topical macro and market issues. For questions or suggestions please e-mail us at betweenthelines@doubleline.com. The views and opinions expressed herein are those of the authors and do not necessarily reflect the views of DoubleLine Capital LP, its affiliates or employees.
