Lets visualize what has already happened in the market.
Specifically FAANG Stocks.
It’s actually pretty stunning.
What goes up, must come down.
Over
recent years, there hasn’t been a safer bet than big tech –
specifically the FAANG stocks, which include Facebook, Apple, Amazon,
Netflix, and Google’s parent company Alphabet.
But in the financial world, this feeling of euphoria can be turned upside-down very quickly.
Since the summer, the five tech giants combined have lost close to $1 trillion in market capitalization from their peaks. Now
the FAANG stocks have officially slipped into a bear market, with
investors blaming rising interest rates, slumping sales forecasts,
possible government intervention, and bubble-like valuations as reasons
for the reversal in fortune.
The generally accepted definition of a bear market is a 20% or greater decline from recent market highs.
Facebook
and Netflix have been in bear territory for months, but the remaining
members of FAANG only just recently capitulated. Apple was the last to
go – but with -24% in lost value since its peak on October 3, it is now
in trouble as well.
Interestingly, this is
the first time that the FAANG stocks have been in a bear market
together, meaning this is uncharted territory for big tech and the wider
market as a whole.
As a result, this slump
can impact the rest of the market – and it manifests a more general
malaise that other, less-beloved tech stocks must deal with.
Unsurprisingly, the Nasdaq Composite – a technology bellwether – is feeling the pain as well:
The
sentiment can also be seen in other tech names, some which have been
slumping for awhile and others which have fallen into a funk only
recently:
Even SaaS darlings like Salesforce can’t shake the trend – the stock entered bear territory itself on November 19th.
Why have investors soured, at least temporarily, on the tech stock universe?
There
are multiple narratives floating around, but the general gist is
something like this: the current bull market in stocks is nine years
long, and at some point the party will come to an end. Because the FAANG
stocks traditionally trade at very generous valuations, they are likely
to come back down to earth as economic conditions deteriorate.
Further,
the fears around FAANG stocks are seemingly being confirmed by recent
news. For example, there are reports of Apple slicing orders for
iPhones, a stagnant Facebook userbase, and other growth hurdles being
experienced by these companies – and these reports are helping to fan
the flames.
Some experts see the slump as an
opportunity to load up on discounted tech heavyweights – while others,
such as early Facebook investor Jason Calacanis, say it is possible that
the social network has already experienced its “Yahoo peak” in terms of relevance and valuation.
Taking
all of this into account I can assure you 2019 will be much rockier
than 2018. We are seeing a return to volatility and a bull market in
uncertainty.
If you want to educate yourself
I will refer you to a trader who has been spot on all year regarding
movements in the financial markets.
Look how
prescient his analysis has been by understanding a not very widely
known theory. Check him out on twitter if you have a minute, I think you
will like what you see. Here’s a peek into where we are headed on the
S&P 500 in the short term.
Spoiler alert…..2300.