CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved.

Where now for FANG stocks?

Vaccine news prompted investors to flood back to value stocks yesterday, but is the great rally in FANG stocks over as a result?

Tech suffers as value surges

Yesterday’s remarkable bounce in stock markets saw one big area left out of the party. Tech stocks suffered a poor day, with the Nasdaq 100 reversing on the day having leapt higher along with everyone else.

On many measures, high-growth names suffered their worst performance in months. FANG stocks, for so long the big winners, saw their worst day against the ‘average’ S&P 500 stock in four years, with a gap of almost 8%, while the Dow Jones enjoyed its best performance against the Nasdaq in twenty years.

The big winners from Monday’s soar away gains were those sectors that have suffered most in recent months, such as banks, travel stocks and energy names. These sectors have suffered heavily thanks to expectations of weaker demand for holidays, a drop in oil consumption and record-low interest rates. The vaccine news suggests that there will be some reversal in each of these trends, even if that reversal is some way off.

Is that it for FANG stocks?

As is the way of markets and the financial media, there was no shortage of commentators willing to declare the great ‘long FANG’ trade dead. On a short-term time frame, it does look like the big post-March rally in these stocks is at an end. But even on a five-year time frame yesterday’s weakness barely even registers.

FANG was a popular trade long before Covid-19, and with good reason. These big tech stocks have been market stars for years, thanks to their commanding market share and impressive levels of cash generation. In a world of low yields, high-growth stocks have been very much in demand.

Growth vs value

Are things about to change? Is value finally due to catch up with growth in terms of performance? Certainly, a steepening yield curve would support the idea of stronger growth in the economy and higher inflation, which may drive investors towards other sectors than technology.

But to keep things simple, most trends go on much longer than anyone expects. We might finally be at the point where the big tech rally begins to weaken, but the tech giants are still compelling investments even in a changing world. It would be silly to cut them out of a portfolio now on one day’s worth of vaccine news. It would be even more foolish to begin shorting them without clear evidence of a deterioration in fundamentals and/or their current bullish price momentum.

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This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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