Revenge of the Nerds

The market has taken a turn lately. The ‘in crowd’ – those golden stocks of last year, including Netflix, Amazon, Google (okay, okay, “Alphabet”) – are flunking out. Despite fancy earnings at Netflix and Google (Amazon hasn’t reported yet), the stocks fell sharply during their reports. These high fliers are all down for the year. Facebook is – thus far – an exception, up a few points; it hasn’t reported yet either.

Meanwhile, industrial companies are pulling out all the stops, and have been for several quarters now, managing their way through a strong dollar, emerging markets disruptions, bond market sell-offs, slow economies, the crash in oil prices, increased regulation …. you get the picture. Their efforts are finally being rewarded. Earnings are not necessarily good yet, but the big downdrafts have ceased, or everyone has become used to the negative scenarios, and these stocks are trading up, rather than down, despite some disappointments. This is the juncture we were waiting for – when investors shift from ‘bad news is bad, and good news is bad’ to ‘bad news is good, and good news is good’. It’s a time when so-so results are viewed as ‘well, it’s not as bad as it could be’. Even the banks, which were pariahs just a week ago, seem cast with a rosy glow.

The nerds deserve a day in the sun, after last year’s beating.