FAANG glory days may be over

NEW DELHI: For years, the so-called FAANG stocks have driven Wall Street higher, fueled by surging revenue, an environment that prized growth over all else, and investor sentiment that viewed the megacap technology and internet companies as ones that could do no wrong.
That narrative showed signs of cracking in 2018. In 2019, it could collapse. The FAANGs — an acronym that refers to Facebook, Apple, Amazon, Netflix, and Google-parent Alphabet — were volatile throughout 2018, with pronounced gains in the first half of the year dramatically reversing in the second half.While Netflix and Amazon remain up about 45% on the year, all five have tumbled from record levels, with declines ranging from Alphabet’s 15% slump to Netflix’s 33% collapse.
Facebook is the group’s worst performer in 2018, having dropped 17% year-to-date and by more than a third from its July record. Apple shares are off nearly 30% from a historic valuation above $1 trillion, a decline that cost its status as the largest stock on the market.
Investors say the downturn probably isn’t over as the companies face their riskiest environment in years with slowing growth, rising macroeconomic uncertainties, particularly with respect to trade policy, and tighter monetary policy.
“The conditions that have allowed these kinds of highgrowth stocks to outperform have changed, if not reversed,” said David Lafferty, who helps oversee almost $1 trillion in assets as chief markets strategist at Natixis Investment Managers. “The Fed’s tightening is getting to where it’s starting to hurt. GDP should decelerate in 2019, which will lead to a natural decline in earnings growth. What that means for multiples and investor sentiment is up in the air, but I just don’t see much upside.”
Such macroeconomic issues have added to concerns that the group’s years-long growth story could be coming to an end.
Facebook has warned on its growth throughout 2018, while both Amazon and Alphabet’s sales missed analyst estimates in their most recent quarter, triggering the latest FAANG downturn. There have also been multiple signs of weakness surrounding demand for Apple’s newest iPhones, leading to a historic amount of caution from the analysts who cover the stock. On Wednesday, Lynx Equity wrote that its internal checks indicated headcount reductions for the first time in years, which “could indicate that the iPhone woes have begun to affect company finances deep enough for the Company to trim non-core projects.”
Separately, both Facebook and Alphabet have been targets of bipartisan criticism, could face increased government regulation on issues surrounding user data, misinformation, and privacy. Google Chief Executive Officer Sundar Pichai discussed such issues in a congressional hearing on Tuesday. Netflix’s most recent quarter pointed to continuing growth, and it is the only stock of the five where analysts haven’t ratcheted down their targets. But the stock is seen as pricey because of its triple-digit multiple and it has also come under heavy selling pressure as overall sentiment has shifted.
“The positive narrative is now broken. Momentum investors are looking at these stocks in a different way than they used to,” said Mark Stoeckle, chief executive officer of Adams Funds.