In 2017 FAANG stocks were on a charge. Apple [AAPL] had its best performing year since 2010, Facebook [FB] had made its biggest gains since 2013, the year after it went public. Amazon [AMZN], Netflix [NFLX] and Alphabet [GOOGL] joined the pair in vastly outperforming 2016.
It was amid the success of these stocks that NYSE-owner Intercontinental Exchange (ICE), launched its FANG+ index in September 2017. The equally weighted index was composed of the traditional FAANG stocks alongside five other “highly-traded growth stocks of next generation technology and tech-enabled companies”. These growth stocks include Alibaba [BABA], Baidu [BIDU], Nvdia [NVDA], Tesla [TSLA] and Twitter [TWTR], all of which made strong gains in 2017, led by Alibaba that boasted impressive 96% increase that year.
For the first year of the index’s existence gains in its constituent stocks, for the most part, continued. A year after launch, FANG+ was up nearly 40%, despite some stocks, most notably Facebook, dropping throughout 2017.
But, 2018 failed to meet the high expectations set the previous year. The index closed 2018 up just 0.08% for the year after a major stock market sell-off at the end of the year. The majority of the index’s stocks closed the year down – bar Amazon, Netflix, Tesla and Twitter. The index did nevertheless outpace the S&P 500 which closed the year down 6.2%.
FANG+ bares its teeth in 2019
The plunge at the end of 2018 did present a buying opportunity for the coming year. As of the end of November this year, the index was up 29.6%, slightly outpacing gains of 25.3% for the S&P 500.
It’s looking like the gains achieved in throughout 2019 will hold solid, or even rally further, through December. However, investors should consider the potential for sentiment-led dips as a result of negative trade war rhetoric from US president Donald Trump, as happened in the first week of December.
FAANG stocks (with the exception of Alphabet) slipped across the first two days of trading in December after Trump announced that he may delay making a trade deal until after the 2020 election. But, by the end of the week, the stocks were all showing signs of recovery, led by Apple and Alphabet, which closed the week up 2.4% and 3.9% respectively – reaching fresh all-time highs in the process.
For the year as a whole, and among the FANG+ constituents Apple led the pack, gaining 71.9% throughout the year to the end of November and Nvidia was not far behind with gains of 62.9%. Baidu and Tesla both registered losses, ending November down 25.2% and 0.8% respectively, while Twitter increased by 7.5%.
FAANGs facing political headwinds
Going into 2020 there are two big political factors which could affect the FANG+. The first of these is the ongoing trade war between the US and China, a clean resolution of which would help buoy the wider market, and particularly boost Chinese companies with US business such as Alibaba, and US companies with hardware made in China, including Apple, Nvidia and Tesla.
The other factor affecting the index and its constituent stocks will be the upcoming US election in November 2020 – or more specifically who becomes the next Democratic nominee. Nominations of either Bernie Sanders or Elizabeth Warren could first affect trader sentiment towards big tech. The outlook for some of these companies may also change depending if either were Sanders of Warren become president. Both have indicated that on the campaign trail that greater regulation of tech giants will be a major part of their respective policies. Warren has even suggested she will break up Amazon, Facebook and Google.
Will an old bull’s run end?
There’s also a big question in 2020 as to whether the bull market could finally run out of steam – an outcome that could cause the FANG+ index to plunge. Analysts are mixed on this view, with some considering that the bull run may fade in the second half of December as stocks continued to rally.
The stock rally in the second part of 2019 is similar to those that have occurred at the close of other bull markets, including in 1999, Ned Davis of Ned David Research warned.
“Given the high valuations I see, plus these divergences between many different indices, I am aware that many bull markets have ended with a rally similar to what we have seen since August,” told CNBC.
However, others were not so sure.
“We expect the current bull market in US equities will continue in 2020. The durable profit cycle and continued economic expansion will lift the S&P 500 index by 5% to 3250 in early 2020. However, rising political and policy uncertainty will keep the index range-bound for most of 2020.” Goldman Sachs analyst David Kostin said in a note subtitled United we fall, divided we rise.
The year ahead
Many analysts to advise investors and traders to remain cautious in over big tech stocks in the new year, and even suggest looking for other alternatives.
“We're treading lightly and taking some chips off the table. It's hard to not take some profits,” Jake Falcon, CEO of Falcon Wealth Advisors recently told CNN, explaining that high-dividend-yielding utility stocks, small-cap value stocks and emerging markets may be a better option than big US tech in 2020.
Meanwhile, the identification of a new set of FAANG-like stocks by some analysts– PayPal [PYPL], Square [SQ], Microsoft [MSFT] or Dropbox [DBX] for example – has been off. All of these stocks have so far been outpaced by Apple and Nvidia. for instance. Similarly, other emerging tech stocks such as Uber [UBER], Slack [WORK], Pinterest [PINS], Lyft [LYFT], Peloton [PTON] and SmileDirectClub [SDC] have all plunged dramatically in 2019.
While 2020 might not be another 2017 for FAANG stocks, what will likely happen will be continued maturity of this set of stocks from aggressive climbers to solid and consistent returners. In the year that will mark the start of a new decade but could also see the current bull market running its course, the real question is if new group of stocks may be able to replicate the success of the FAANG?
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