Faang stocks lose their bite

Asset Class in Focus

The five tech giants saw an average loss of 2.2% when the market opened for the new year.

When the Wall Street’s bell rang to open the market for 2019 on 2 January, Faang (Facebook, Apple, Amazon, Netflix and Google – now Alphabet) stocks were among the biggest losers with an average loss of 2.2%.

At the opening of the stock market the five tech giants were trading 2.5%, 1.9%, 2%, 2.8% and 1.9% lower respectively, defining a fall of at least 20% from recent market highs.

Netflix peaked over the summer of 2018, recording a stock price of $419 in July, but opened the year with a stock price of $268.

The others followed a similar pattern with Amazon’s 2018 peak being at $2,039 and opened the year at $1,539; Facebook recorded its high at $217 and was trading at $136 on the 2 January; and Alphabet’s record high of $1,285 last year turning into a price of $1,055 in the new year.

According to Momentum’s analysis, Faang stocks were “over-heated” for the largest part of 2018 and a fall was inevitable.

Geir Lode, head of global equities at Hermes, said the stocks had begun showing signs of weakness towards the end of 2018.

Apple’s woes

Apple has experienced the greatest market price loss falling around 32% from its 2018 peak of $232 a share to its 2019 market opening price of $158.

Further, Apple saw its Asian shares fall by over 7% in after-market trading on 2 January 2019, when it announced a revenue warning for its Chinese business.

The announcement came as a result of the weakening demand for Apple’s front-running product, the iPhone, in the Chinese market.

In November 2018, the company was expecting revenues in a range between $89bn to $93bn for the last quarter of 2018. However, Apple announced on 2 January that its revenue was likely to be closer to $84bn – showing a 5% decline in its predictions.

The company blamed China’s economic slowdown for the loss.

Tim Cook, chief executive of Apple, said that the business is not only dependent on short-term sales, since revenue from other businesses grew by 19%.

Similarly, Cook said he will expect to report a record quarterly earnings per share for the quarter.

Neil Goddin, manager of the Kames Global Equity fund, said the problems for Apple in China raised a question over whether the latest  profit warning was specific to Apple, specific to a slowing mobile phone upgrade cycle, or a more widespread cyclical slowdown.

“The coming days and weeks will tell us more about the Apple downgrade, so if we see further warnings across multiple sectors (luxury goods and industrials would be obvious bellwethers) then markets will likely continue to trade lower. Yes they have been weak, but they could go a lot lower if we truly are entering a meaningful slowdown.”

At the opening of Wall Street on Thursday 3 January 2019, Apple’s shares fell by a further 9%.

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