By Landon Thomas Jr.
FACEBOOK. Amazon. Apple. Netflix. Google. Not only do they dominate our daily lives, but as their stocks continue to soar, these technology giants may be dictating our financial futures as well.
In just three years, their share prices have risen far beyond the major market indexes — Amazon leads the way, up 206%; Apple trails the pack with a 67% return — as investors of virtually every stripe have piled into these companies.
But this gold-rush mentality is now giving investors pause. Not because they think these companies will crack, as many did in previous market corrections, but because in the parlance of the industry, the trade has become very crowded.
“There is valuation anxiety out there, that is for sure,” said Ed Yardeni, an independent investment strategist who often highlights the influence of these stocks in his research notes. “No one is feeling totally comfortable holding stocks that are this expensive.”
Despite some nervousness about a potential bubble building, stock indexes remain near recent record highs (without adjustment for inflation).
During the late stage of any bull market, investing in highflying momentum stocks requires investors to balance conflicting sentiments of greed and fear. Everyone wants to keep making money, but everyone also lives in fear of the party suddenly coming to an end.
As is its wont, Wall Street has given voice to this unease with a nickname: FAANG, an acronym for the five stocks that evokes a gruesome end more than it does the exuberance of the moment.
As these stock prices continue to surge higher, analysts agree that investors have little choice but to stick to their guns. That is because the FAANG stocks have become such large components of the major stock market measures. For a manager not to match the share of an Apple or an Amazon in a benchmark would result in an actively managed fund trailing its index and its peers.
“It’s like you are riding a missile that you know could explode at any moment beneath you,” said Julian Brigden of Macro Intelligence 2 Partners, an independent research company. “But you have no choice but to be sucked into the trade.”
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