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Strong Q1 With FAANG Leading The Charge: What Can We Expect Next?
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Q1 Performance
The equity market just had its best quarter in nearly a decade, following Q4, the worst quarter since 2011. The S&P 500 total return has surged 12.9% in Q1, being driven by easing trade tensions and a dovish Fed. The market still hasn’t fully recovered from the losses taken in Q4 of last year, with the S&P 500 down 2.5% over the previous 2 quarters.
FAANGs role
FAANG , (AAPL - Free Report) , (AMZN - Free Report) , (NFLX - Free Report) , and (GOOGL - Free Report) has been one of the more significant drivers in both the correction in Q4 and the rally in Q1. Over a trillion dollars in market cap evaporated in Q4 with a 25% drop in total value from these 5 tech powerhouses alone. With Netflix and Apple down a staggering 30% and Amazon down just over 25%, putting these 3 stocks in bear market territory. In Q1 FAANG recovered quite a bit climbing 24% with Netflix and Facebook leading the pack, 32% and 27% gains respectively. Still, over the last 2 quarters, FAANG is down 7% with FB being the only stock with positive returning. Below is a performance chart comparing the S&P 500 (red) and FAANG composite (blue) over the last 2 quarters.
FAANG’s ostensibly omnipotent companies were hammered in Q4 for a number of reasons. The concerns over the trade war was the most apparent reason, causing these international corporations to have restless shareholders. Investors also wanted to pull profits off the table, considering the FAANG composite is up about 250% over the past 5 years. Funds and investors were likely reallocating their portfolios’ funds into underperforming segments. Capitulation played a role in the exasperated correction with declines as much as 30% for some of these stocks. Funds and investors hit a loss threshold where they had to sell out of some of these securities to avoid further losses.
Economic Outlook
With S&P 500 surging 13% in 3 months, only about 2% off its all-time high, is this strong first quarter a glimpse of the economic growth to come in 2019 or is this the calm before the storm? The flood of IPOs coming into the market could be a sign of calamity ahead. IPO’s are being rolled out at record levels with companies like Lyft, Uber, Pinterest, Slack, Postmates and Airbnb cashing in before it’s too late. The number of companies going public this year is expected to surpass the tidal wave of IPOs that hit the market during the dotcom bubble in 1999, according to some investment bankers. There is still a lot of cash in the economy for these IPOs and market sentiment is still positive. The perceived window of opportunity for companies to go public at a reasonable valuation is purportedly closing.
The IPO boom is something to look out for throughout the rest of the year, these companies might know something we don’t. There are also concerns about economies internationally. The 10 Yr Bund, the Eurozone fixed-income benchmark, went negative a couple of weeks ago due to weak economic figures in the Eurozone. This could be a sign that the international economy is past its peak in this economic cycle. The US’s Treasury bond yield curve inverted this year due to anticipated credit risk in the near term, with the 2-month note yielding more than the 1-10yr bonds. Below is the current Treasury yield curve illustrating its inversion.
There are no definitive signs of a recession on the horizon, but an economic downturn could be due. We are in the midst of the longest bull market in the history of the stock market. The S&P 500 has quadrupled since 2009 rising from the ashes of the financial crisis. Investing and trading in this bull market has been fun but we need to be cognizant of looming signs of a downturn.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?
From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.
This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.
Image: Bigstock
Strong Q1 With FAANG Leading The Charge: What Can We Expect Next?
Q1 Performance
The equity market just had its best quarter in nearly a decade, following Q4, the worst quarter since 2011. The S&P 500 total return has surged 12.9% in Q1, being driven by easing trade tensions and a dovish Fed. The market still hasn’t fully recovered from the losses taken in Q4 of last year, with the S&P 500 down 2.5% over the previous 2 quarters.
FAANGs role
FAANG , (AAPL - Free Report) , (AMZN - Free Report) , (NFLX - Free Report) , and (GOOGL - Free Report) has been one of the more significant drivers in both the correction in Q4 and the rally in Q1. Over a trillion dollars in market cap evaporated in Q4 with a 25% drop in total value from these 5 tech powerhouses alone. With Netflix and Apple down a staggering 30% and Amazon down just over 25%, putting these 3 stocks in bear market territory. In Q1 FAANG recovered quite a bit climbing 24% with Netflix and Facebook leading the pack, 32% and 27% gains respectively. Still, over the last 2 quarters, FAANG is down 7% with FB being the only stock with positive returning. Below is a performance chart comparing the S&P 500 (red) and FAANG composite (blue) over the last 2 quarters.
FAANG’s ostensibly omnipotent companies were hammered in Q4 for a number of reasons. The concerns over the trade war was the most apparent reason, causing these international corporations to have restless shareholders. Investors also wanted to pull profits off the table, considering the FAANG composite is up about 250% over the past 5 years. Funds and investors were likely reallocating their portfolios’ funds into underperforming segments. Capitulation played a role in the exasperated correction with declines as much as 30% for some of these stocks. Funds and investors hit a loss threshold where they had to sell out of some of these securities to avoid further losses.
Economic Outlook
With S&P 500 surging 13% in 3 months, only about 2% off its all-time high, is this strong first quarter a glimpse of the economic growth to come in 2019 or is this the calm before the storm? The flood of IPOs coming into the market could be a sign of calamity ahead. IPO’s are being rolled out at record levels with companies like Lyft, Uber, Pinterest, Slack, Postmates and Airbnb cashing in before it’s too late. The number of companies going public this year is expected to surpass the tidal wave of IPOs that hit the market during the dotcom bubble in 1999, according to some investment bankers. There is still a lot of cash in the economy for these IPOs and market sentiment is still positive. The perceived window of opportunity for companies to go public at a reasonable valuation is purportedly closing.
The IPO boom is something to look out for throughout the rest of the year, these companies might know something we don’t. There are also concerns about economies internationally. The 10 Yr Bund, the Eurozone fixed-income benchmark, went negative a couple of weeks ago due to weak economic figures in the Eurozone. This could be a sign that the international economy is past its peak in this economic cycle. The US’s Treasury bond yield curve inverted this year due to anticipated credit risk in the near term, with the 2-month note yielding more than the 1-10yr bonds. Below is the current Treasury yield curve illustrating its inversion.
There are no definitive signs of a recession on the horizon, but an economic downturn could be due. We are in the midst of the longest bull market in the history of the stock market. The S&P 500 has quadrupled since 2009 rising from the ashes of the financial crisis. Investing and trading in this bull market has been fun but we need to be cognizant of looming signs of a downturn.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?
From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.
This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.
See Stocks Today >>