Why You Should Avoid These Four Blue-Chip Stocks
Tech stocks are shattering records.
You’ve probably noticed that Donald Trump has had a huge impact on global financial markets.
Since Election Day, bonds have tanked. The U.S. dollar has spiked to a 15-year high. And U.S. stocks have broken out to record highs.
Lately, however, the “Trump Rally” has lost some steam. The S&P 500, for example, is trading almost exactly where it was four weeks ago.
Technology stocks are still on a roll, though. The Nasdaq Composite Index, which tracks major U.S. tech stocks, is off to its best start in over a decade. MarketWatch reported yesterday:
The Nasdaq Composite has gained 2.76% in its first five trading days of 2017, marking the gauge’s best start to a year since 2006, when it jumped 5.14%.
Yesterday, the Nasdaq jumped another 0.4% to a new record high.
• The Nasdaq is now the year’s top-performing major U.S. index…
FANG stocks are a big reason why.
FANG is a popular investing acronym. It stands for Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Google (GOOG), which now goes by Alphabet.
In 2015, FANG stocks were market darlings. Netflix was that year’s top-performing stock in the S&P 500. It surged 134%. Amazon, the year’s second best-performing stock, gained 118%. Google and Facebook also had great years. They gained 46% and 34%, respectively.
• Last year, FANG stocks did just OK…
They climbed 7.8% on average. That’s less than the 9.5% gain by the S&P 500.
Trump’s upset victory was a big reason why FANG stocks underperformed the market.
• Netflix dropped 5.90% in the three weeks after Election Day…
Amazon and Facebook both dropped 4.7% over the same period. Google fell 4.1%.
Like many post-election moves, these caught many investors by surprise. But the pullback in FANG stocks actually makes a lot of sense.
Investor’s Business Daily wrote a week after the election:
The big techs had all fallen since the surprise election of Donald Trump as the next president. Trump has championed coal, U.S. manufacturing, a get-tough policy on immigration and other issues that don’t favor Silicon Valley, a region that heavily favored his opponent, Hillary Clinton. Trump also has specifically criticized Apple and FANG company Amazon.com (AMZN).
In other words, Trump’s policies should favor other sectors more than technology companies. That’s why investors moved money outside of FANG stocks when Trump won. Investor’s Business Daily added:
“Megacap tech stocks where hedge fund clients were broadly overweight appear to have been viewed as ‘safe’ and are being used as a source of funds for the rotation into financials, health care and industrials, where investors were not positioned,” Morgan Stanley said in a research note Monday.
Of course, the election was more than two months ago. The market has had plenty of time to adjust to the strange new world we find ourselves in.
• FANG stocks are rallying again…
So far, they’ve gained 6% on average this year. That’s four times better than the 1.5% gain by the S&P 500.