Even with Netflix slowing, the market rally is likely not over

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Oil & Gas E&P (XOP): up 13 percent

Biotech (IBB): up 10 percent

Aerospace/Defense (ITA): up 7 percent

Russell 2000 (IWM): up 9 percent

Source: CNBC

I’m not trying to be Pollyannaish. There is plenty of broad weakness. Financials are down on a flattening yield curve, and industrial and material stocks are down on trade concerns. Consumer staples shares are down on competition and the reduced value of brand names.

But don’t fall into the “it’s all FAANG and nothing else matters” trap. The market has held up well precisely because of the rotation we have seen in and out of sectors this year.

As for this argument that Netflix is in some kind of existential crisis and it’s all over, I don’t buy that, either. Remember what happened to Facebook in March? It went from $180 to $150 over the course of a few days due to the Cambridge Analytica scandal. That was a genuine existential threat to the company — enormous reputation issues were at stake, and even the business model was under scrutiny.

In the end, the momentum guys took profits, and the stock recovered, now up 30 percent since bottoming in April.

The subscriber growth miss by Netflix is certainly disappointing, but it hardly rises to the crisis Facebook faced in March. So, don’t write Netflix off either.



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