50/50 Chance Of A Dot-Com Style Bust?

For much of the past four or five years, Facebook, Apple, Amazon, Netflix, and Google (or Alphabet as it is now known), the so-called FAANG stocks have captured investors’ imagination. This selection of tech giants has lead the market higher, helping the S&P 500 reach new highs as other companies have floundered.

FAANG Stocks
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Tencent, Alibaba, TSMC and Samsung have achieved the same halo effect in Asia. Between the beginning of February 2016 and their peak earlier this year, these four companies added a combined $1.1 trillion in market value.

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Unfortunately, investors have been just as eager to sell these stocks on the way down as they were on the way up.

Since topping out earlier this year, these four Asian tech giants have lost a combined $506 billion in market value. Tencent has suffered more than any of its peers, according to an analysis conducted by analysts at CLSA, the decline in market value from 2018’s peak, as a percentage of the firm’s market capitalization in February 2016 is 135%. In other words, in just a few short months, selling has wiped out around two years of gains.

It is not just the Asian giants that are suffering. FAANG stocks are also feeling the heat. Combined, these two groups have seen $1.2 trillion in market value wiped off their shares since peaking earlier in the year.

Is this just a setback, or the beginning of something more serious? The team at CLSA believe there’s a 50/50 chance that we are at the beginning of a much more significant decline, a decline that could mirror the 2000 — 2003 market slide.

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FAANG stocks have been responsible for a significant percentage of the S&P 500’s gain since the financial crisis. According to analysis carried out by CLSA, since March 2009, 25 companies in the S&P 500 have added $100 billion or more to their market caps. Of these, only four have added more than $600 billion, Alphabet, Microsoft, Amazon.com and Apple.

The performance gap between this select group of equities and the rest of the market has only accelerated in the past two years. At one point earlier this year, Amazon had added more in market cap than the combined value of Walmart, Target and Costco put together. Even though it’s off more than 25% from its highs, the stock is still up more than 32% in 2018.

Since March 2009, when the S&P 500 bottomed, only 38 of the 337 stocks that remain in the index have gained more than 1000%. Top four gainers are Fifth Third Bankcorp, NVIDIA, Amazon.com, and Expedia. These are the only stocks to have gained more than 2000% since March 2009.

Considering the outsized impact FAANGs have had on the market for the past ten years, CLSA’s leading technical analyst Laurence Balanco estimates that the chance of a 2000–2003 style market slide is now at 50%.

This article first appeared on ValueWalk Premium

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