Zombie FANGs Are Back to Rule the Market

Zombie FANGs Are Back to Rule the Market

One of my wildest predictions for 2018 was that the easy ride for the FANG stocks (Facebook, Amazon, Netflix, and Google) would finally end.

“These stocks will stop rocketing higher every month,” I wrote back in December. “Some of them might even underperform the averages.”

No, I didn’t think Wall Street’s most popular names like Facebook and Netflix were headed for the edge of a cliff. But buying the FANGs had morphed into a “can’t lose” investing strategy.

Since everyone was successfully cashing in on the market meme in 2017, I figured it was time for the market to strike back and bring a little pain to the FANG trade.

Remember, investing in 2017 was dead simple. All you had to do was buy one of the popular tech stocks and wait for the gains to roll in. Just look at these one-year returns:

Did the easy ride for the FANGs end this year like I predicted? Not exactly…

In fact, Facebook and Amazon have accelerated in 2018. Amazon shares are up almost 38% so far this year. Netlfix is up a stunning 82% year-to-date!

Meanwhile, Facebook and Google have fallen in line with the averages. Instead of screaming higher every week, these two stocks are stuck in neutral. Facebook has posted year-to-date gains of a little more than 5%. And Google is up just 1% so far this year.

Instead of underperforming the market as a group, the FANGs are breaking up and going their separate ways.

Is the hype finally finished? Will the FANG market meme disappear before the end of the year? We’ll have to wait and see.

When we turn back the clock to look for signs of FANG’s demise, the first event that will stick out will be the November 2017 launch of the NYSE FANG+ Index futures. This market offering trimmed the fat and gave us the most-hyped tech names to trade — in one package.

The index is made up of the four original FANGs plus Alibaba, Baidu, Nvidia, Tesla and Twitter. The FANG+ Index futures packed the market’s hottest stocks into one trading vehicle. FANG became an actual index with its own futures contracts.

“If the FANGs do start down the road toward mediocre returns,” I wrote late last year, “we can point to the launch of FANG+ Index futures as tech’s harbinger of doom.”

To be clear, I wasn’t calling a market top or even a top in any of the hot tech stocks that have juiced the market’s returns. In real life, market tops are downright impossible to call. We can only piece together the possible causes after the dust clears.

But as I noted in December, I expected many of these world-beating stocks will come under pressure in 2018 because of how well they’ve done. Facebook and Google are still getting negative attention over privacy concerns.

Tesla stock is imploding this year and Elon Musk is going crazy. In short, we were overdue for some backlash. Sweetheart status for even the most popular companies is never permanent.

The market gods have given us a tremendous gift. We enjoyed near-perfect trading conditions last year. The major averages never even posted a 5% pullback. Fear and volatility evaporated.

But after the February correction slammed stocks this year, we’ve had the opportunity to look beyond the “can’t lose” FANGs and find the trades no one else is talking about. The entire investing world lumped these household names into one.

As I noted late last year, the contrarian in me says that means it’s time for them to go their separate ways. Facebook and Google have already dropped from our list of outperformers. Now we need to keep an eye out for the next hot stocks that will take their place.