Need to Know: If Wall Street busts higher again, this stock sector is a no-brainer

A “Wall of Blurry.”

That’s how JonesTrading’s Michael O’Rourke describes recent action for equity markets, which he says have been “overtaken by mechanical trading that defies all logic.” He finds it odd to see so much optimism in the face of plenty of political disarray — a U.S. shutdown entering its 26th day and the U.K. in the grips of a seemingly never-ending Brexit nightmare.

And, and…: “After nearly a year into a trade war, it appears the only thing the U.S is set to gain is an even larger trade deficit with China. Global industrial production and global manufacturing PMIs are rolling over,” he writes in a note to clients. Cats and dogs.

But then others, like Cracked Market’s Jani Ziedins, says those gains are pretty easy to explain. “Big money returned from the holidays and is definitely more inclined to buy the discounts than sell the fear,” though he says that is nothing a few bad headlines couldn’t spoil.

And the money for sure was screaming tech on Tuesday as Netflix

NFLX, +0.67%

 and its subscription jump got everyone excited. Our call of the day from iBankCoin’s The Real Fly says if Wall Street gets rally fever again, investors can count on one big sector to keep scooping up the gains.

The self-described “Le Fly” says that 3% bump for the software sector Tuesday “represented alpha personified prior to the recent downturn.”

“The fundamental story is revenue repeatability, the same simple business model that made NFLX so successful and took Amazon from” a bookseller to Amazon Web Service “and then prime Gods,” he writes, adding that the “subscription model is precisely where you want to remain invested,” rattling off names that are seeing rapid growth like HubSpot

HUBS, +1.51%


ZEN, +1.48%


NTNX, +0.51%

 and New Relic

NEWR, +0.37%

Then there is Salesforce

CRM, +0.00%

which Fly notes has punched 150% higher, versus a 98% gain for the S&P over 5 years.

There is a caveat though, as he says a high-growth sector like software isn’t exactly cheap. And should the market turn again, software will most likely suffer.

While Netflix is already off to a blazing start this year — up 32%, HubSpot and the rest haven’t seen gains nearly that good.

Keep in mind, that it seems there is a limit to what the I-want-it-now consumer will pay for their Netflix addiction. Twenty bucks, Reed.

The market

With a number of big bank earnings rolling out Wednesday morning, Dow

YMH9, +0.50%

 and S&P 500

ESH9, +0.33%

 futures are attempting to edge higher, while the Nasdaq

NQH9, +0.16%

 may be ready to take a breather after a potent surge. The tech index

COMP, +0.37%

led an overall solid day for stocks Tuesday, with the S&P 500

SPX, +0.31%

 up nicely and the Dow

COMP, +0.37%

also ending higher.

The dollar

DXY, +0.10%

is softer, gold


is pausing and crude


a mixed bag.

The FTSE 100 index

UKX, -0.49%

 is sagging as investors getting the first chance to react to that huge Brexit defeat for the U.K. government. Europe stocks

SXXP, +0.42%

 are largely down across the board. Meanwhile, Asia saw a pretty uneventful session, with the Nikkei

NIK, -0.55%

ending lower.

The chart

Does the classic 60-40 stock/bond diversification recommendation for the average investor stand the test of time? Our chart of the day from Wealth of Common Sense’s Ben Carlson leans toward the affirmative. It apes a chart that he often refers to which looks at the historical probability of positive returns from the S&P 500 over time, which shows the lengthier the period, the more positive it becomes.

His 60/40 chart also paints a pretty positive picture for the investor willing to hang in there. “I was surprised to see not a single negative return over 10 years but even 5 years out was positive 9.5 out of every 10 years,” says Carlson.

A Wealth of Common Sense

And he also did this nice scatterplot of calendar-year returns that help put a lousy 2018 for the S&P 500 in perspective. Top-heavy indeed:

A Wealth of Common Sense

The buzz

It’s a big day for results from the financial realm. Goldman

GS, +3.48%

is up after topping estimates. Bank of America

BAC, +5.14%

is climbing on big revenue beat. Bank of New York Mellon

BK, +1.84%

 is down on a profit miss, as well as BlackRock

BLK, +2.87%

and Charles Schwab

SCHW, +2.89%

is up after  are still to come, and after the bell Wall Street hear from Alcoa

AA, +0.93%

Read: Why mortgage lending at Wells Fargo, Chase and Citi plunged

And: The $100,000 question you should be asking your real-estate agent

First Data

FDC, +18.31%

is soaring in premarket after Fiserv

FISV, -6.17%

 announced an all-stock deal worth $22 billion for the financial tech group. Fiserv is faring less well.


JWN, -8.08%

 is getting whacked by a downgrade and price cut from Goldman.

Snapshot-parent Snap

SNAP, -11.70%

 is slumping after another top-level executive departed, this time CFO Tim Stone.


SHLDQ, +6.45%

 Chairman Eddie Lampert has reportedly prevailed in a bankruptcy auction, with a bigger takeover bid of $5.2 billion for the struggling retailer, which may allow it to keep its stores open.

The Brexit drama keeps coming Wednesday, as beleaguered Prime Minister Theresa May could be facing a no-confidence vote. Here’s what’s next for Britain and the EU, and check out what the richest man in Britain did ahead of that disastrous Brexit vote. Odds are even rising for the whole thing to be scrapped altogether. The drama has definitely triggered some European politicians:

The economy

Investors likely won’t get an update on retail sales due to the government shutdown, but a home builders’ index is on tap, along with the Fed’s beige book due later in the afternoon.

The stat

$80 million — That’s how much a bad bet on S&P 500 derivatives during the Christmas meltdown may cost French bank BNP Paribas. Bloomberg reports that the bank’s head of U.S. index trading, Antoine Lours, made that trade just before his Christmas vacation. Surprise, surprise, he isn’t back yet, says the report.

The quote



“For people who are struggling, we will make them more aware of their responsibilities, because some of them are behaving properly, while others are screwing about.” That was not-so-popular French President Emmanuel Macron in a town hall meeting Tuesday with 600 mayors as he tries to calm the “yellow jacket” protesters.

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Published at Wed, 16 Jan 2019 14:08:58 +0000