The G20 summit took place in Bali, Indonesia, on November 2022…
Outlook for FAANG
Information is not investment advice
What is FAANG?
Let’s discuss the future of the well-known stocks: Amazon, Apple, Facebook, Google, and Microsoft, that form FAANG group. Investors call it differently: Tech Giants, Big Five, or S&P 5. These five companies are the largest and most powerful ones in the technology industry of the United States.
The end of Covid-19 is bad for Tech Giants
All these companies benefited from the social distancing restrictions and stay-at-home regime amid the Covid-19. Will they keep rallying up amid the global recovery? Probably not. A strong economic rebound isn't looking so welcome for Big Five. The time comes for the companies which were hit hard by the pandemic.
Main headwinds: inflation fears and higher yields
The $1.9 trillion stimulus package raised expectations for near-term inflation as it would boost spending. As a result, investors started questioning when the Federal Reserve would slow its asset purchases and increase interest rates.
The bond market was the first to react. The 10-year Treasury yield surged above 1.6%, the high unseen for over a year! Higher returns from Treasuries tend to impact negatively Tech Giants. That led to a so-called "reopening trade": reopening stocks that dropped at the beginning of the coronavirus quickly changed into investors’ favorites. We can already observe the rotation from FAANG to value and cyclical stocks.
Must-haves of 2021:
1. Cyclical stocks
The term ‘cyclical’ refers to a stock in which business generally follows the economic cycle of growth and recession. In other words, cyclical stocks are rising in times of economic expansion but falling during recessions and market instability. Examples of cyclical stocks are below.
The travel and hospitality industries: Booking, TripAdvisor, Royal Caribbean.
Automakers: Ford, General Motors.
Banks: JPMorgan, Goldman Sachs, and Bank of America.
2. Value stocks
Value stocks represent companies that are undervalued: they were traded at a lower price relative to their economic indicators, such as dividends, earnings, or sales. Let’s go through the most popular values stocks these days.
AT&T: a telecom giant, which is trading at less than 9.5 times this year's expected earnings.
Berkshire Hathaway: its CEO is Warren Buffett! A conglomerate of more than 60 businesses and a massive stock portfolio.
Procter & Gamble: a consumer products manufacturer. A mother of well-known brands like Gillette, Tide, and Bounty.
Johnson & Johnson: a healthcare giant, which is famous for its consumer healthcare products. By the way, it has created an effective vaccine to fight the Covid-19 virus.
The current pressure on FAANG shouldn’t lead the group to record lows. The falling would last just in the short term. Morgan Stanley said: "the bull market continues to be under the hood, with value and cyclicals leading the way. Growth [FAANG] stocks can rejoin the party once the valuation correction and repositioning is finished."
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