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Ripe or rotten? Investors pick cherries among sectors

A trader works on the floor of the New York Stock Exchange.
Jin Lee | Bloomberg | Getty Images
A trader works on the floor of the New York Stock Exchange.

With a decent retail sales report and Wednesday's strong Empire State survey, most traders think the economy is showing modest improvement and that quantitative easing will likely end in the third quarter of this year. What's interesting is that we are seeing some efforts at stock picking based on "micro" developments within industries.

Retail stocks have been hurt by markdowns that are now extending into January.

Energy stocks—oil and gas—have been hurt by low oil prices and a glut of natural gas. Telecom, home builders and other interest rate sensitive stocks hurt by uncertainty about the direction of interest rates. Emerging markets and commodity stocks (steel, coal) have been hurt by weakness in China.

European stocks are up across the board (strong four days in a row) after the World Bank raises global growth forecast.

The Nikkei, after dropping 3.2 percent on Tuesday, closed up 2.5 percent overnight. The yen has resumed its weaker trend.

China ended down slightly. There will be an important fourth quarter gross domestic product (GDP) report out Sunday night.

Elsewhere

1) The second initial public offering (IPO) of the year priced on Wednesday. Cypress Energy Partners (CELP), a master limited partnership (MLP) that offers saltwater disposal facilities, priced 3.75 million shares at $20.

2) Bank of America earnings were slightly better than expected. The major themes among the three big banks that have reported so far fall along the following lines: stronger capital and liquidity, with lower credit costs and lower expenses. Meanwhile, net interest margin is OK but not great, while mortgage portfolios are weaker, and trading is adequate.

Bottom line: there is a recovery underway in the financial space. What they really need is better loan growth and higher rates at the low end. Many loans are based off LIBOR, which depends on the short end of the curve.

Why is loan growth so modest? While this has often been cited as a sign the U.S. economy is still weak, many traders have noted that the corporate bond market has been on fire for more than a year. Many companies needing to raise money--including those with "junk" credit ratings--are turning to the corporate bond market to raise money rather than going for loans.

3) On Apple, while everyone is waiting for the first sales of iPhones through China Mobile this Friday, a number of analysts have noted very strong iPhone sales over the holiday season. Lack of innovation from the Android rivals should also help. Everyone is now anticipating that Apple will launch larger screen models of both the iPhone and the iPad. The iWatch is perennially on the horizon as well.

By CNBC's Bob Pisani

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USD/JPY
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LIBOR 1M
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  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

Wall Street