Since the financial crisis ended a decade ago, the market's impressive bull run has been powered to a surprising degree by just five stocks. The dynamic quintet of Facebook, Inc. (NASDAQ: FB ), Apple Inc. (NASDAQ: AAPL ), Amazon.com, Inc. (NASDAQ: AMZN ), Netflix, Inc. (NASDAQ: NFLX ), and Alphabet Inc. (NASDAQ: GOOGL ) , colloquially known as the FAANG stocks (Google has since changed its corporate name to Alphabet, but FAANA just doesn't have the same ring to it).
Those stocks have delivered mind-boggling (and wallet-fattening) returns since June 2009, when the U.S recession came to an end. Netflix, Inc. (NASDAQ:NFLX) has gained an absurd 6,000% over the past 116 months, while Amazon has managed only slightly less ludicrous gains of 1,940%. Apple has posted 850% returns during that time, double Alphabet's 428% gains. Lastly is Facebook, which didn't go public until May 2012, but has nonetheless gained 334%.
The impressive group of stocks could seemingly do no wrong, and rather than their gains slowing, as seemed inevitable, they only appeared to be accelerating. 2017 was a particularly banner year for them, as all five gained at least 30% and four of them gained over 50%. It was more of the same in the first-half of 2018, as the five stocks accounted for a whopping 81% of the S&P 500's returns during that period. Adding Microsoft Corporation (NASDAQ: MSFT ), which has also been on a huge tear over the past few years, to the list bumped that figure to 99%.
Meir Barak the founder of Tradenet tells us: “People don't remember it, but until the first half or third quarter of 2018 people were talking of the Trump Effect and the newfound trust in the markets. Ever since, however, investors in some key NASDAQ stocks became somewhat less impressed”. Barak’s Tradenet Day Trading Academy offers a range of courses on technical analysis and a YouTubeTrading Channel where he explains some aspects of technical analysis and conducts daily live streams of his trading.
However, it's been a completely different story since mid-2018. Apple has lost 7.7% and seen its market cap plunge from its peak of slightly more than $1 trillion to just over $800 billion. Amazon has dipped by 3.64%, while Netflix has declined by 8.04%. Facebook, Inc. (NASDAQ:FB) has endured the greatest suffering of the five, losing 15.04%. Alphabet is the only FAANG stock to post (very modest) gains since the end of June 2018, of 0.51%. However, shift the goalpost to the end of July 2018 and Alphabet has fallen by 7.88%.
By late-November, the five companies had collectively lost $1 trillion from their peaks earlier in the year and all five had officially entered bear market territory, being at least 20% off their 52-week highs. Stumbling into bear territory alongside them were several entire industries and world indices.
Multiple catalysts are to blame for the collapse of the FAANG stocks and the broader market, many of them not within those companies' control. Perhaps the most immediate was the Fed's decision to raise interest rates in September despite the other fears that had been percolating for months even as the market continued to push higher. Among them were signs of an intensifying U.S/China trade war, an increasingly chaotic Brexit, and a cooling global economy. In October, the IMF slashed its 2019 global growth forecast by 0.2 percentage points.
Another is regulatory concerns, which Apple Inc. (NASDAQ:AAPL) CEO Tim Cook warned about in November, saying that it was "inevitable" for the biggest U.S tech companies as users and regulators grow increasingly concerned with how data is being collected and used. Cook himself has been critical of Alphabet and Facebook's mass collection of data, describing it as "surveillance" during an October speech in Brussels, and stating that it was being “weaponized against us with military efficiency”.
Last month, Apple blocked a Facebook iOS app that paid users as young as 13 a paltry monthly fee for access to their personal data, including their private messages. However, privacy concerns are just one of several regulatory challenges that the FAANG companies are coming up against, and it's not just Facebook and Alphabet Inc. (NASDAQ:GOOGL) that are at serious risk.
Meir Barak the founder of Tradenet tells us: “Out of all FAANG stocks, it seems like Amazon and Facebook are facing the largest regulatory risk. For Amazon, recent developments in India, making it all but impossible to operate its Prime model, could snowball in other developing markets. Facebook’s regulatory matters in Germany and France, along with potential special taxation on tech giants throughout Europe, could indeed threaten the company’s future developments.”
The proposal for an EU-wide digital services tax failed to receive the necessary unanimous support in December, which lead to France saying it would implement such a tax on its own if an EU-wide tax wasn't in place by May. Additional and more effective ways of taxing the tech giants, which are notorious for moving their money overseas to avoid paying their fair share, are also being pushed for in the U.S.
In a February 12 appearance on the Joe Rogan Experience, 2020 Presidential candidate Andrew Yang pitched the case for a universal basic income that would pay U.S citizens $1,000 monthly. To help pay for the projected $1.8 trillion annual bill, Yang suggested a 10% value-added tax that would be applied to everything from Amazon transactions to Facebook ads, generating an estimated $800 billion annually.
The FAANG stocks are also facing some challenges unique to each of them. The reception for Apple Inc. (NASDAQ:AAPL)'s iPhone XR has been muted and the smartphone market looks like it's finally becoming saturated. That doesn't bode well for Tim Cook's company given that its efforts in wearables and other segments haven't gained nearly enough traction to counteract an erosion of iPhone sales.
Facebook's recent app scandal paled in comparison to its Cambridge Analytica debacle, yet the social media giant continues to grow its active monthly user base regardless, with that figure hitting 2.3 billion at the end of 2018. Alphabet has been plagued with antitrust and privacy scandals, while Amazon has also faced antitrust probes from Donald Trump.
Netflix, Inc. (NASDAQ:NFLX) is the least scandal-plagued of the five companies, but is burning massive amounts of cash on content and may face its stiffest competition yet later this year when The Walt Disney Company (NYSE: DIS ) launches its own streaming service.
While the FAANG stocks have all posted gains so far in 2019, it appears doubtful that investors will re-embrace them like they had and elevate them to their former peaks anytime soon. With so much uncertainty surrounding the global economy, the possible threat of damaging regulation, and their still-rich valuations offering little room for error, the market's love affair with FAANG appears to be OVER.
Disclosure: None. This article is originally published at Insider Monkey .