Stocks Surf Higher on Tech’s “Next Wave”
The S&P 500 has hit a record every day of 2018. That’s its longest streak of smashing records since 1964. Tuesday was no exception.
All main indices closed at record highs on Tuesday. Tech stocks — once again — took the pole position.
Technology was a stellar performer in 2017. The sector is setting the table to repeat its winning ways in 2018. To make money over the long haul, look for unstoppable trends. The digital revolution is one such juggernaut.
As tech stocks soared to new heights on Tuesday, an underlying theme was apparent: we’re now in the next wave of digital development.
The first wave is coming to an end. Disruptors such as Amazon (NSDQ: AMZN) defeated dinosaurs. Complacent firms got crushed. New markets were created. Consumer habits changed.
Since 2014, technology firms have represented 42% of the rise of the U.S. stock market. Disproportionately driving the bull market have been the FAANG stocks — Facebook (NSDQ: FB), Apple (NSDQ: AAPL), Amazon, Netflix (NSDQ: NFLX) and Alphabet’s (NSDQ: GOOGL) Google. Investors are betting that Silicon Valley will account for an ever-greater share of corporate profits.
A particularly fearsome predator: Amazon. The name of the company has even become a verb. When Amazon enters an industry, the competitors it vanquishes are said to have been “Amazoned.”
Hence the second wave. This phase isn’t dominated by newcomers. The incumbents rule. Amazon’s purchase of Whole Foods reflects this dynamic. With its huge cash hoard, Amazon was able to turn the grocery business upside down. Rumors swirl that Amazon now seeks to disrupt retail by acquiring Target (NYSE: TGT).
Target is a “Big Box” chain. Yet, this legacy retailer has successfully transitioned to e-commerce. It’s one of the few. Many of its peers are flailing, like Mastodons in the tar pits.
Amazon covets Target’s revamped stores. They would complement its e-commerce platform. Amazon CEO Jeff Bezos is a student of Darwin. He knows it’s not the strongest that survive. It’s the most adaptable.
That’s why blue chips are integrating second wave technology into their traditional businesses. General Motors (NYSE: GM) is a prime example. Detroit is embracing autonomous cars, artificial intelligence and the Internet of Things. For the Motor City, it’s adapt or die.
Another example occurred in December, when Walt Disney (NYSE: DIS) announced that it would spend $66 billion to buy the television and movie studios of 21st Century Fox (NSDQ: FOXA). Disney will stop distributing films through Netflix. Disney will launch its own streaming services. Walt’s Empire is taking the fight to Netflix.
Older tech firms, too, are trying to co-opt the second wave. Last March, Intel (NSDQ: INTC) bought Mobileye for $15 billion. Mobileye’s specialty: chips and software for driverless cars.
Incumbents supposedly fear change. That’s the textbook notion. But the tech giants that launched the “first wave” aren’t timid. Their risk-taking only gets more aggressive.
These trends could provide the impetus to keep the bull market alive in 2018. Looking for new opportunities? Catch the next wave.
Tuesday Market Wrap
- DJIA: +0.41% or +102.80 points to close at 25,385.80
- S&P 500: +0.13% or +3.58 points to close at 2,751.29
- Nasdaq: +0.10% or +6.87 points to close at 7,164.26
Tuesday’s Big Gainers
- Eastman Kodak (NYSE: KODK) +119.35%
Storied firm launches digital coin.
- Boston Scientific (NYSE: BSX) +8.29%
Medical device firm reports strong Q4 results.
- Delphi Technologies (NYSE: DLPH) +3.46%
Analysts bullish on auto parts firm’s prospects.
Tuesday’s Big Decliners
- Express (NYSE: EXPR) -20.35%
Retailer issues weak guidance.
- Acuity Brands (NYSE: AYI) -15.05%
Lighting firm’s Q1 earnings fall.
- AK Steel Holding (NYSE: AKS) -8.20%
Steel maker’s Q4 report expected to be bleak.
Letters to the Editor
Pot stocks: Budding problems?
“Any change to your enthusiasm for marijuana stocks after the position against cannabis by the feds?” — Peter G.
I’m not changing my favorable view of marijuana stocks one bit. To be sure, U.S. Attorney General Jeff Sessions last Thursday rescinded Obama administration policy that had taken a stance of non-interference with marijuana-friendly state laws.
Sessions’ move shifts federal policy away from Obama’s hands-off approach. Now federal prosecutors are free to crack down on pot in states where it is legal. The GOP claims to be a champion of state’s rights. Not always.
Many states have legalized marijuana. The drug remains illegal under federal law. Thursday’s decision hammered pot stocks. My take? Sessions is posturing for social conservatives. The AG’s action will amount to nothing. Several states vow to oppose the AG’s efforts.
Jeff Sessions takes a dim view of marijuana. But marijuana is a multi-billion-dollar business. Whether you approve of marijuana or not, it’s here to stay as a money-maker. I take no moral stance on marijuana. That’s not my job. I merely point to the profitable opportunities of the “green rush.”
The legalization of marijuana enjoys overwhelming popular support. Marijuana companies won’t suddenly close up shop because Jeff Sessions issued a memo.
Questions about pot stocks? Fire away: firstname.lastname@example.org
John Persinos is managing editor of Personal Finance and chief investment strategist of Breakthrough Tech Profits.