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Market Crashes On FAANG Stocks

Facebook, Amazon, Apple, Netflix, and Google, once the “cool kids” of the bull market run up, are now leading stocks down into new lows as the new economy of bigger ups and bigger downs takes over.

It’s been proven an evident this past year that the S&P 500 now lives and dies based on the performance of these five companies. Earlier this year, they accounted for more than 50 percent of overall market growth. Now that they’re floundering, and other market headwinds are rolling in, the major indexes are having the stool swiped from under them. Without a turnaround or bottoming out of individual company downtrends, the markets will continue to dip lower.

Facebook, Apple, and Google have given up their gains for the year and are now trading lower than in December 2017. Netflix and Amazon are also on a downtrend, but are still holding on to their exorbitant valuations and some of the gains from earlier this year.

The acronym, FAANG, was initially coined by Jim Cramer, the high-energy host CNBC’s Mad Money in 2017. At the time, all five of these stocks had explosive growth of more than twice that of the market average in the S&P 500.

“This was a year when at the start of it you had to own the FAANG names and at the end of it you don’t want to own any of them,” says Kevin Landis, who is the portfolio manager at the Firsthand Technology Opportunities fund.

The key reason for the fall is that investors were largely betting on, and anticipating, overall growth. Now, the growth story seems to have ended. In July, Facebook officially announce that it was “resetting” its guidance regarding growth expectations, and has continued to lower expectations over the past five months.

“Facebook’s growth rate trajectory was exponential because people found the network more rewarding when more people they knew joined the network,” writes tech industry expert and blogger Beth Kindig. “The same will be true for Facebook’s deceleration as well. As people start to spend less time on the social network, there’s viral deceleration.”

In a similar vein, analysts see Netflix growth decelerating as well. Kevin Landis says that Netflix is beginning to plateau in the now highly competitive over-the-top space, with Roku showing an opportunity for growth.

“It’s hard to see Netflix growing here by an order of magnitude, but it’s easy to see Roku growing by an order of magnitude as the cord-cutting trend picks up steam,” says Landis.

In a bear market, with uncertainty at all time highs, the high valuations for these companies cant survive, and investors are fleeing from their positions. However, JP Morgan sees some opportunity on the horizon for FAANG stocks, specifically Amazon and Facebook.

Amazon obviously took its lumps in [the third quarter] after earnings,” says JP Morgan Internet analyst Doug Anmuth. “The key is, once Amazon gets past we would expect growth to accelerate in early 2019.”

Additionally, Anmuth sees Facebook’s security concerns as a quickly evaporating controversy, and one that will give way to further growth. “I think they are taking much more serious steps than a year or two ago,” said
Anmuth of Facebook privacy policy.