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FAANGs Slip to Bear Market: What Lies Ahead for ETFs?

The so-called FAANG stocks — Facebook FB, Amazon AMZN, Apple AAPL, Netflix NFLX and Alphabet GOOGL — which were the biggest drivers of the nine-year bull run, are caught in a nasty broad market sell-off. Each of the five stocks has been falling persistently over the last six weeks and have now entered bear market.

From the 52-week high level, Facebook is down 39.5% while Netflix has plunged 35.6%. Amazon has lost 25.4% while Apple and Alphabet have slid more than 20% each. Collectively, the five stocks have lost nearly $1 trillion in value since hitting their respective 52-week highs, more than $300 billion in market value this month and about $575 billion since the start of October (read: Should You Take a Bite Into the Beaten-Down Apple ETFs?).

The decline stemmed from weaker-than-expected earnings and a disappointing outlook. Facebook has been hit hard following its third-quarter results wherein user growth slowed. After that, shares are declining on a raft of negative publicity surrounding its handling of foreign influence on the 2016 election. Notably, Facebook hit its lowest level since February 2017 on Nov 19 and is on pace to finish the third straight month in the red, which would mark the longest quarterly losing streak since 2013.

Amazon has been on a wild ride after issuing soft guidance for the holiday quarter, while Apple has dropped on the Wall Street report that the iPhone maker has slashed production of its three new iPhone models — XR, XS and XS Max — introduced in September. Meanwhile, Netflix and Alphabet slid with the rest of the FAANG stocks. In fact, shares of GOOGL slid to the bear market territory for the first time in seven years (see: all the Technology ETFs here).

The turbulence was also triggered by global growth worries resulting from ongoing trade tensions, geopolitical uncertainly, slowing economic growth in China and emerging markets.

ETF Impact

The massive decline led to terrible trading in overall technology ETFs since the start of the fourth quarter. Below we have highlighted the ETFs having the largest allocation to FAANGs.

Invesco QQQ QQQ: This fund is down nearly 10% and makes up for 40.5% share in FAANGs.

iShares Evolved U.S. Technology ETF IETC: This fund tumbled 11.6% and accounts for 27.8% share in FAANG stocks.

iShares North American Tech ETF IGM: This product has plunged 11.6% half way through Q4 and accounts for about 26.9% in the FAANG group (read: Why to Buy the Dip in FAANG ETFs).

iShares Russell 1000 Growth ETF IWF: This ETF allocates a combined 18.7% share in FAANG stocks and has shed 9.1% so far this quarter.

First Trust Cloud Computing ETF SKYY: This ETF was down 9.3% and has 19.2% allocation in FAANGs.

What Lies Ahead?

Despite the slide, the outlook for FAANG stocks seems encouraging thanks to the rising interest rate scenario and solid demand for cutting-edge technology. Additionally, rounds of upbeat data indicate a strong economy, thereby maintaining investors’ confidence.

Further, FAANG stocks are backed by their strong fundamentals for this fiscal year with expected earnings growth of 19.3% for FB, 325.7% for AMZN, 12.1% for AAPL, 110.4% for NFLX and 31.7% for GOOGL. All these five stocks carry a Zacks Rank #3 (Hold), suggesting room for upside in the days ahead (read: 4 Sector ETFs & Stocks for Bountiful Gains in November).

If these weren’t enough, holiday optimism is expected to drive these stocks higher on hopes of a digital shopping spree. Innovative products such as wearables, VR headsets, drones and virtual reality devices are fast becoming technology staples for savvy Americans. According to the Consumer Technology Association (CTA), U.S. technology spending during the 2018 holiday season (October–December) is expected to reach a record $96.1 billion, up 3.4% from last year. Consumers will spend a record amount on emerging technology such as smart speakers, smart home devices and smartwatches.

Given the solid outlook but somewhat bearish near-term sentiments, investors may want to consider staying on the sidelines for the time being. However, risk-tolerant, long-term investors may want to consider this recent slump a buying opportunity, should they have the patience for extreme volatility.

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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Netflix, Inc. (NFLX) : Free Stock Analysis Report
Facebook, Inc. (FB) : Free Stock Analysis Report
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
FT-CLOUD COMPUT (SKYY): ETF Research Reports
ISHARS-NA TECH (IGM): ETF Research Reports
ISHARS-RS 1K GR (IWF): ETF Research Reports
NASDAQ-100 SHRS (QQQ): ETF Research Reports
ISHR-EUS TECH (IETC): ETF Research Reports
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