What The FAANG Stocks Say About The Market

Then there’s the undeniable size of the “Great Gang,” as I call them. Their capitalization is huge. FB’s capitalization in more than $576 billion, AMZN’s is more than $837 billion, Apple’s is more than $929 billion, Netflix is the baby at $170 billion, GOOGL is more than $815 billion, and Microsoft weighs in at $774 billion. That’s a grand total of $4.1 trillion in capitalization.

Their huge capitalization, which is also their equity “value” makes them serious movers in the benchmark indexes like the Dow, Nasdaq, and S&P 500 that they’re part of.

Watch It Like A Hawk

Since 2013, when Facebook was added to the S&P 500, the weight of the FAANG stocks in the benchmark index has doubled to 11% of the index’s 500 most valuable stocks in America.

Then there’s the passive investing crowd. They’re increasing at breakneck speed, buying into index-tracking ETFs and mutual funds that are loaded with FAANG stocks and Microsoft. Why? Because that’s where the performance has been. And mutual fund managers and exchange-traded product sponsors want their products to deliver performance to attract more investors into them.

When you consider how this all works together to create a self-fulfilling, momentum-chasing force driving these stocks, you can see how important they are to the market.

As long as they’re going up, especially together in almost lockstep, the markets, the Dow, the Nasdaq, and the S&P 500 are going to keep going higher.

Besides creating a positive, optimistic outlook for stocks when they’re moving higher (as they’re bought up to be put into indexed products), all the other stocks in the indexes they’re in are bought, too, which lift the markets.

It doesn’t matter if the markets sell off, as long as the FAANG stocks and Microsoft aren’t selling off, as well. The market’s going to hiccup now and then, but if the “tech darlings” hold up, they’ll lead the markets back and take them higher as they go.

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