FAANG Stocks Lose Their Leadership as Share Prices Fall

This year’s sell-off in technology stocks has reduced the importance of the FAANG group of companies that had dominated the market.  As a result, the FAANG stocks of Facebook owner Meta Platforms (META), Amazon.com (AMZN), Apple (AAPL), Netflix (NFLX), and Google parent Alphabet (GOOGL) now account for about 13% of the S&P 500 Index’s weighting, down from a record 19% in 2020 and the lowest in more than two years.

The FAANG stocks have lost a third of their value or more this year, and the tech-heavy Nasdaq 100 Stock Index ($IUXX) (QQQ) has fallen 28%.  With interest rates continuing to climb, highly valued technology stocks may fall further.  Winslow Capital Management said, “for the first time in five to ten years, big tech is seeing a significant degradation in fundamentals.  That’s a substantial change in the long-term outlook for these companies, and why they’re no longer the leadership.”

The plunge in technology stocks this year was sparked by soaring inflation that prompted an aggressive response from the Federal Reserve.  The 10-year T-note yield has more than doubled in 2022, and the U.S. dollar is on track for its biggest one-year jump since 2015.  Both are bearish factors for the fast-growing, highly valued companies that dominate the Nasdaq 100.  The length of this year’s rout in technology stocks is also notable, as the Nasdaq 100 hasn’t closed above its 200-day moving average since April, its longest streak in 20 years.

This year, a record 13 S&P 500 ($SPX) (SPY) companies have lost at least $100 billion in market value, and 12 of them are tech-related companies.  Amazon.com has lost $756.7 billion, Alphabet has lost $689.7 billion, and Meta Platforms have seen $616.8 billion in value evaporate. Depending on how the last two trading weeks of this year develop, this group of $100 billion losers could get a couple of other technology stocks to join them.  This year, Intel and Accenture have losses currently around $90 billion.

Despite the plunge in FAANG stocks this year, there was a bright spot within the technology sector. The so-called “Value” tech stocks staged a comeback, as investors favored the shares of dividend-paying stocks that sell at low earnings multiples.  International Business Machines (IBM), which has underperformed the overall market for years, jumped 18% this year, including dividends.  Also, Hewlett Packard Enterprise (HPE) is up more than 6% on a total-return basis. Meanwhile, the S&P 500’s tech sector index is down 23%.   

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