These seven outsize tech stocks are carrying this market
The following tech stocks have a combined market capitalization of $8 trillion (and counting): Facebook (FB), Apple (AAPL), Netflix (NFLX), Google (GOOG), Microsoft (MSFT), Amazon (AMZN) and Nvidia (NVDA). Together, they’ve become known in certain corners as the FANGMAN stocks, an acronym that is an extension of the more well-known FANG stocks moniker. And right now, they account for about 30% of the entire S&P 500.
Lately, that’s been a good thing. Here are the year-to-date returns for each of the seven FANGMAN stocks:
Average 2020 Return: 62%
S&P 500 2020 Return: 7%
You can see how important they are to the stock market as a whole. The other 493 large-cap stocks that comprise the S&P have been basically flat for the year. But because the FANGMAN stocks carry so much weight these days, they’ve made everything look much better. In essence, these seven big tech stocks – whose combined market caps are higher than the total GDP of Japan, Germany and the U.K. – are saving this market.
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And that means two things.
One, if you don’t already own one or more of these stocks, what are you waiting for? It’s never too late to buy a few shares, despite their inflated values; they’ve been rising for years in spite of those lofty valuations.
Second, if you want to know which way the market is headed next, just keep an eye on these seven stocks. If several of them start to falter, perhaps dipping below their 50- or 200-day moving averages or intermediate-term support, then they’re likely to drag the rest of the market down with them. Fortunately, that’s nowhere close to happening.
FANGMAN Stocks Holding up Well
As of this writing, not one FANGMAN stock is even close to touching either of its moving averages. This month, only Netflix stock has even flirted with its moving lines, and it quickly bounced off its 50-day line, rising nearly 10% in the last month.
With the seven largest tech stocks all rising, it’s no coincidence that the market is at fresh all-time highs, up 7.5% in the last month.
Could the bubble on the FANGMANs be about to pop? It’s certainly possible, especially in the midst of a global pandemic and resulting recession. Tech stocks as a group have never been more overvalued relative to the market, including during the dot-com boom, as the below chart (courtesy of Bloomberg and U.S. Global Investors) shows.
It doesn’t mean Dot-Com Bubble 2.0 is about to burst. But it does mean that this is a good time to use caution. That was already the case with stocks at all-time highs amid the unabating pandemic, double-digit unemployment, and a potentially messy presidential election just over two months away. And it’s doubly true of tech stocks, many of which have already been dinged in recent weeks.
Until the FANGMAN stocks start to show cracks, however, the market should hold up well. All seven of them would make good long-term investments, even at today’s sky-high share prices and valuations. But in the short term, I’d expect a correction.
Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!