Authored by Adam Taggart via PeakProsperity.com,
The long-awaited breakdown in sentiment is finally here...
Two weeks ago, I issued a report to Peak Prosperity's premium subscribers, warning of an imminent downwards re-pricing of the FAANG stocks. I even made a rare recommendation for taking an active short position against them (one now up 18%).
That report proved quite timely. Over the past 10 days:
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Netflix (NFLX) is down 10% after issuing disappointing subscriber growth and Q3 guidance
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Facebook (FB) is down 20% after delivering lower user and revenue numbers than the Street was expecting
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Amazon (AMZN) is flat despite posting blowout Q2 EPS yesterday, offset by a revenue miss
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Google/Alphabet (GOOGL) only managed a meager 3% rise after reporting earnings & revenue beats that were tempered by rising costs and a record $5 billion EU anti-trust fine
This sudden weakness among key FAANG members is extremely significant. Much more so than most investors realize.
Confidence In The FAANGs Ran Supreme (Until Now)
Over the past few years, investor capital has been increasingly concentrating into the FAANGs while the rest of the market has been deteriorating:
ETF With FAANG Equities Within Top 15 Holdings
2018: 605
2017: 501
2016: 430
2015: 332
2014: 277
2013; 230
2012: 175
2011: 101
2010: 62
2009: 14
2008: 9
Source: Lawrence McDonald
As portfolios have become more and more FAANG-dominated, more and more investors have come to see those five stocks as "unstoppable". They have unnaturally performed as both "risk-on" and "risk-off" havens for years -- delivering consistent share price growth when markets move higher, while holding steady when they don't.
As a result of this piling-in by investors, the five FAANG stocks collectively now have a whopping market capitalization of $4 trillion.
They comprise nearly half of the NASDAQ index's market cap.
The FAANGs are the largest five companies in the S&P 500. And they were responsible for ALL of that index's growth over the first six months of this year (without them, the S&P 500 would have had a negative return in H1 2018):
In short, the FAANGs now ARE the market.
The Canary In The Coal Mine
The FAANGs are the last remaining stocks pulling this 9-year bull market higher.
Remember that they're collectively worth $4 trillion? Well, they were all worth only $1.2 trillion in 2013. They've nearly quadrupaled in just 5 short years.
The ramp-up in the FAANGs is largely responsible for today's record highs in the equity indices, none more so than the NASDAQ:
Which is why it's essential to appreciate how bull markets end. They end by one thing and one thing alone: a reversal in sentiment.
And a reversal of sentiment is exactly what we're beginning...