October 2018 gave us another October we won’t forget too easily. Markets dropped quickly, 10 to 15 percent lower. A few business days remain when writing this contribution. We shall see whether they can turn the trend.
Yet, investors turned up to buy on the 25th of October and the index rose quickly with almost 2 percent. The boost did not take into account the results of a few FAANG Stocks after the bell rang, though.
FAANG stands for Facebook, Apple, Amazon, Netflix and Google(*)
(*) The Google stock has changed its name and has been replaced by Alphabet by now.
Google was hit with 8%, Facebook with 8% and Amazon with 14%! The results were below expectations, which made the S&P500 (future) decrease by 2% after the bell rang, which meant the profits of the day were lost.
It is indeed a fact that Microsoft and the FAANG combined currently influence the increase of the S&P500 by 50%. Due to the drop of the FAANG Stocks, the American market is getting hit, even though many other companies are publishing wonderful quarterly results.
As an investor, one can pose the question: has the euphoria of FAANG ended?
Fundamentally, something is definitely up with a few FAANG Stocks. I think it is due to the negative effects of the new privacy laws in Europe (GDPR), because the majority of Americans desires similar laws in the United States.
Facebook and Google in particular are using exactly your personal data to sell advertisements; that is their core business. In turn, you get free access to their servers and functionalities.
Recently, Tim Cook (Apple‘s CEO) made a plea at the 40th International Conference of Data Protection and Privacy Commissioners. He stated unambiguously that the U.S. has to adopt a privacy law similar to the European GDPR-rules! Facebook and Google are rather sensitive to these types of comments. Another friendship lost…
While a potential American GDPR will hardly influence the business models of companies like Amazon, Netflix and Apple, this will impact the other gigantic technology companies massively. (Did Tim Cook want to divert the attention?) For example, France in particular is a high proponent of a European Tech-tax. They would use this tax to pay for education, healthcare and infrastructure.
In order to best estimate the course of the five FAANG Stocks, create an index based on Facebook, Apple, Amazon, Netflix and Google. A comparison of this FAANG index with its five shares and the American Nasdaq 100 will provide a rapid analysis.
On the left graph, you clearly see that Alphabet (Google) and Facebook are performing much less strongly than the three other FAANG Stocks. Apple rose the least, but retains the best.
The technical imagine confirms that something is up with Facebook and Alphabet.
Facebook has performed less strongly than the Nasdaq since the start of the year. Alphabet has been performing sub-par since July.
If we remove the two weakest values from this index and add Microsoft, we will have a new MAAN-Index.
With these four shares in your portfolio – see right graph above – you are presented an image of a much different caliber…
During the past few years, there were rarely any investments that were better than FAANG.
The five sares kept outperforming the average of the market, but doubt has been increasing since 2018. The most recent numbers on 25 October confirm that doubt, and the markets respond strongly due to the weight of FAANG.
Their own incredible success contributes to new laws and taxes, which diminishes the growth.
If no new business models will be sprouted within a few of these companies, there are better alternatives, such as MAAN…