They say you can’t judge a book by its cover. As we come to the end of the year, it’s safe to say you can’t judge a market by its FANGs.
FANG, an acronym for Facebook (FB), Amazon (AMZN), Netflix (NFLX) and the company formerly known as Google, Alphabet (GOOG, GOOGL), have come to be known as the four horseman of the recent rally.
Each of the FANG stocks have grown significantly since the start of 2015 — some are even up triple digits.
A quick look at the charts below show why.
Also notice how the three major indices (the lines in purple, dark blue and light blue at the very bottom) have performed over the same time, and you’ll see how the FANG stocks are altering our perception of the year.
| FANG Stock | YTD Performance | Market Index | YTD Performance |
| Facebook (FB) | +32% | S&P 500 | -1.5% |
| Amazon (AMZN) | +110% | Dow | -2.5% |
| Netflix (NFLX) | +147% | NASDAQ | +5% |
| Alphabet/Google (GOOGL) | +41% |
The market is teetering dangerously close to finishing out the year with the first yearly loss since 2008, but without the help of these four FANG stocks, the indices would be even deeper in the red.
The issue here is leadership. The performance of a handful of winners has helped slow the bleeding in what has been (and continues to be) a bloody year for the market. The carnage under the surface is being shielding by these FANG stocks.
While the market needs Big Tech stocks to continue leading until some kind of wider rotation can occur, the relative lack of leadership as a whole is preventing the market from both holding on to and following through on any significant rally.
Going forward, the market needs broader leadership with better company performance, rather than piggybacking on the success of a few.
But perhaps we’re already starting to see this rotation: Thursday was a big day for GoPro (GPRO) and Twitter (TWTR) — up an average 9% while the FANG stocks taken together were down on the day – among others, and I’m hopeful that we’ll see these names go much higher.
For the moment, the market is going to remain locked in a range until the ultimate test of resolve when the Fed hikes rates for the first time in more than nine years. The market has reacted positively to economic news that boosts the Fed’s case for a rate hike, but negatively at the Fed’s deliberation as to whether to hike rates sooner or later. That means more volatility is likely to come when the Fed finally does raise rates at its Dec. 16 meeting.
Until we see the complete rotation of leadership, FANG will likely keep leading the way higher. And while it’s certainly nice to have a few spectacular winners pulling the indices up with them, keep in mind the dangers of relying on just a handful of stocks to hold up the market’s performance.
Eventually the tides will turn, and when they do, the indices may fall right in tandem.
