4 reasons the blistering tech rally won't last much longer, according to a veteran strategist

Tech is red-hot again, but be warned: that might not last much longer, according to one longtime investing strategust.

The Nasdaq Composite is on track for its sixth consecutive week of gains, and has risen more than 18% in just the last month. Jim Paulsen is worried, however, that some warnings have emerged that suggest the party could soon be over.

“Tech investors beware!”Paulsen, a market strategist with decades of experience on Wall Street, wrote in a Thursday morning Substack post. The investing pro listed a number of “yellow flags” in tech stocks beyond high valuations and shared charts showing the flashing warnings signs.

“My guess is the S&P 500 Technology sector (and new era stocks in general) will likely underperform the overall S&P 500 index during the balance of 2026,” Paulsen said.

“Not crash or suffer any major calamity, but rather just trail other parts of the stock market which have mostly been left behind during this bull market,” he clarified, adding that if he’s right, it would be the first time since 2022 that tech stocks disappointed Wall Street.

Here are four “yellow flags” for tech stocks that Paulsen is worried about.

Tech sector still trades below key price levels

Tech stocks have surged in recent weeks fueled by a reignited risk on sentiment as investors eye a potential end to the Iran war.

Yet, the sector still lags its respective relative price highs seen in October of 2025.

“Consequently, new era stocks have been “losers” relative to holding the overall S&P 500 index for more than six months,” the strategist said.

Paulsen said that the recent rally could send tech stocks to new relative record highs, but that he worries price momentum could stall as the stocks struggle to surpass previous peaks.

Corporate cash is drying up

Tech stocks are driven highs by excess cash, and corporate liquidity is drying up.

“During the last 35 years, the two major technology bull markets — 1990s and again since about 2014 — have been driven by expanding corporate cash balances relative to overall economic activity,” the strategist said.

“Tech leadership should continue as long as U.S. corporate liquidity relative to overall economic activity continues to grow. However, since the end of 2024, the U.S. corporate cash to GDP ratio has rolled over.”

Paulsen warned that corporate cash balances could moderate further in the coming quarters depending on how the war in Iran plays out.

“Tech investors beware! At least since 1990, once corporate cash dries up — the stock market’s technology miracle often struggles.”

R&D disconnect

Throughout the latest bull market, tech sector gains have corresponded with gains in the Bloomberg R&D Leaders index.

Fresh relative price highs in the R&D index have coincided with new relative highs for the S&P 500 since 2023, but the latest rally has been different.

“It’s currently worrisome that the most recent rally in the S&P 500 technology sector has not been supported by much of an upward move in the R&D Leaders relative index,” Paulsen explained.

“If companies who spend the most on R&D spending no longer have positive stock market momentum, will tech stocks be able to continue leading?”

An comeback in “old era” stocks

Tech stocks have led the bull market in recent years, but some Wall Street pros have said that “old world” investing plays are poised for a comeback.

The theme can be described as the HALO trade, a term coined by Josh Brown, short for “heavy asset, low obsolescence” companies, or those rooted in physical infrastructure.

“I have long thought part of the massive outperformance from new era stocks during the contemporary bull market was due in part to a total lack of good investment alternatives,” Paulsen said.

“The value of any stock will rise if its fundamentals are superior, but it will rise much more ferociously if it is doing well when most everything else is simultaneously doing poorly,” he added.

“Old era” stocks have outperformed the broader market in recent months, offering investors a strong alternative to tech stocks.

“If after this initial post-Iranian crisis surge, old era segments of the stock market continue showing signs of sustained outperformance, new era stocks could lose support due to widespread investor reallocations toward old era stocks,” Paulsen outlined.