Going into earnings season investors were excited about the strong economy and benefits from tax cuts. Many predicted good stock performance would broaden out to all sectors from solid profit growth.
But investors are still huddling in the same high-growth technology names like FANG stocks with the S&P 500 roughly flat so far this year.
Industrials are one of the worst-performing sectors this year. Its troubles were led by construction equipment maker Caterpillar, which fell 6.2 percent on April 24 despite its better-than-expected earnings results that day. The decline came after management said on a conference call that its first-quarter profit will be "the high-water mark for the year" due to higher investment spending.
Financial stocks aren't doing much better even after several banks reported better-than-expected profits. One analyst questioned the sustainability of the bank sector's growth, saying core loan expansion wasn't as impressive after adjusting for tax cut benefits.
"If you take out the capital markets business and the one-time events, it shows these banks aren't doing any business, and that's the key problem," said Dick Bove, chief strategist at Hilton Capital Management on April 13. "If you take a look right across the board, credit cards are down, auto is down, student loans are down, the corporate area is mixed to down. The only thing that's working is middle-market lending."
With all the recent hand-wringing over technology stocks due to regulatory concerns, some of the biggest winners are well-known FANG stocks.
Netflix shares are up more than 60 percent this year and more than 10 percent in the past month as the streaming video giant's subscriber growth soared in its first quarter. Its stock rose 55 percent in 2017.
In similar fashion, Amazon hit a new all-time high Friday, a day after it reported better-than-expected March quarter earnings results, as Wall Street praised the company's Prime's price hike and growth in new markets. The e-commerce company's stock is up nearly 35 percent this year after a 56 percent return last year.
"We are in the sweet spot between Amazon investment cycles where new fulfillment/data centers are driving accelerating revenue growth while incremental capacity utilization is driving margin expansion," Goldman Sachs analyst Heath Terry wrote in a note to clients Friday. "We still remain in the early stages of the shift of compute to the cloud and the transition of traditional retail online and, in our opinion, the market is underestimating the long-term financial benefit of both to Amazon."
The market is rewarding companies with sustainable secular growth outlooks instead of sectors with more uncertain fundamentals. Perhaps investors should heed the trend and stay in the technology winners.