The recent underperformance of FAANG stocks and Microsoft makes one question -- have these stocks run out of steam now?
Since the news of Pfizer and BioNtech’s vaccine started doing the rounds, investors are eagerly eyeing the much awaited normalcy. However, this has taken a toll on the much loved FAANG stocks and Microsoft — the tech giants that skyrocketed during the lockdown months. Their recent underperformance makes one question — have these stocks run out of steam now? “It increasingly looks like growth has peaked, just like it increasingly looks like Big Tech’s share of the S&P500 market cap has peaked,” said Chris Wood, global head (equity strategy), Jefferies.
Big Tech not getting any bigger
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Facebook stock has tumbled 6% while Apple shares have traded flat since November 5. Share price of Jeff Bezos-owned Amazon fell 4.6% during the same time period, while Netflix slipped 4.5% and Google moved flat-to-negative. Microsoft shares have also fallen 4%. This is contrary to the path these stocks have been charting since the pandemic began. With an increased digital consumption by users who were not allowed to move out of their homes, all FAANG stocks and Microsoft enjoyed a decent run with each of them clocking gains of more than 50%.
“The six Big Tech stocks’ share of S&P500 market cap rose from 18% at the start of 2020 to a peak of 26.2% on 1 September and has since declined to 23.5%,” Chris Wood noted in his weekly Greed & Fear newsletter.
Time for value stocks is here
The market strategist also made a case for picking value stocks now as he thinks growth has peaked. “GREED & fear was asked by an investor at the start of this week what GREED & fear would do if GREED & fear could only own growth stocks or value stocks over the next three months, as opposed to the recommended barbell strategy here. GREED & fear’s answer would be only to own value stocks,” he said. Chris Wood pointed out that the MSCI World Growth Index has now underperformed the MSCI World Value Index by 8.6% since 6 November, after outperforming by 42.4% since the start of this year.
His broader market advice for investors this week remains to go for cyclical trades. “The advice here remains to stick with the cyclical trade on the view that markets will continue to focus on the vaccine and look through cases and deaths, though on the course of the pandemic there have been some hopeful developments of late,” he said.