The mighty FAANG rally has skidded to a complete stop as stocks continued to fall this week following yet another tech sell-off on Monday, with the October downturn continuing into November.
Apple was hit hardest, with its share price hitting its lowest level since February 2017 on Monday, taking its market cap below $1tn. Its stock has declined over 19% since its all-time-high of $233 on 3 October, wiping more than $192bn from its market cap.
FAANG stocks were the market’s best performers at the start of 2018, and without them the S&P 500 return would have been marginally down for the first half of the year. Apple [AAPL] and Amazon [AMZN] reached $1tn market caps in August and September respectively. Amazon has since lost near $200bn in value.
FAANG stocks - share price performance, NASDAQ interactive chart, as at 19 November 2018
Short-sellers return
There were signs of a downturn earlier in the year. In July, Facebook [FB] and Netflix [NFLX] fell 19% and 12% respectively following Q2 earnings.
In the face of rising business costs and significant regulatory scrutiny, Google shares [GOOGL] have also been on a mostly downward trend in the second part of the year.
The fall has seen the return of shorting, with short sellers making $1.6bn betting against the FAANGs just two weeks ago, according to S3 Partners.
The technology slump has led to a wider decline. The global stock market has been fluctuating significantly throughout the year, indicating a lower-risk appetite as geopolitics continue to drum up uncertainty.
19%
Fall of Facebook share price following Q2 earnings announcement
Bad Apple?
Doubts hang over Apple as demand for the new iPhone remains a key concern after supplier Lumentum Holdings [LITE] reported a decrease in orders for laser diodes that create 3D sensing. Although Lumentum didn’t reveal who the customer was, the market has assumed it to be Apple considering that it is one of the largest customers.
This led to JP Morgan cutting its earnings estimates for Apple for the second time this month.
Although the newfound cooperation between Amazon and Apple is hoped to boost sales for both going into the holiday season, Amazon still gave lower-than-expected guidance for Q4, forecasting $2.1bn-$3.6bn, below Street expectations of $3.9bn.
Even if the slight increase in share prices continues to spread among the tech stocks, they still have a way to go to reach the pre-October sell-off.
Analyst optimism
It may appear that the major tech stocks have lost momentum, however some analysts believe the October woes could still subside in November.
In an optimistic outlook, Jacob Abboud, CIO at Allianz’s, believes the current volatile market will blow over next year, with prospects bright in Asia particularly.
In the meantime, Cristina Ulang, the head of research at First Metro says the current market’s volatility could be a buying window for longer-term plays.
Overall, CEO of The Carlyle Group, Glenn Youngkin, doubts the downturn is ‘the beginning of the end’, arguing this bout of volatility is a natural reset of expectations.
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