The NYSE FANG+ Index, which represents highly traded growth stocks of technology-enabled companies, has fallen a whopping 18% from its peak in June 2018. Understandably, investors are showing concern for the resulting death cross—a technical chart pattern that formed when the index’s short-term moving average dropped below its long-term moving average at the beginning of this month (Exhibit 1).
However, a dispassionate look back at early 2016—the last time when a death cross took shape in the chart—reveals that FANG stocks bottomed before the 50-day moving average fell beneath the 200-day moving average. In other words, all the selling occurred before the death cross, suggesting that it might work better as a confirming buy signal for FANG stocks.
To be clear, we aren’t acronym investors. Our active managers assess individual companies on their own merits. That’s difficult to do with an index composed of companies from different sectors and countries. Facebook, Amazon, Apple, Netflix, NVIDIA and Google (FANG) belong to the S&P 500 Communications Services, Consumer Discretionary and Information Technology sectors. Baidu, Alibaba, Tesla and Twitter (BAT) belong to the Chinese and U.S. Communication Services and Consumer Discretionary sectors.
Contrary to popular belief, Apple and NVIDIA are the only FANG or BAT companies in the S&P 500 Information Technology sector, which helps explain why the carnage hasn’t been as bad in that segment. As a group, true tech stocks have tumbled 10% from their peak in October 2018, and a dark cross hasn’t formed in the chart. Even if it does, it could prove to be a buying opportunity for tech shares like early 2016 (Exhibit 2).
2015/2016 is an interesting comparison with 2018/2019. Back then, fears of a hard landing in China abounded, the Federal Reserve (Fed) was raising interest rates and tightening monetary policy, the U.S. dollar was strong, and oil prices were declining. Sound familiar?
Perhaps the same headwinds today will dissipate in similar fashion next year. The Organization of Petroleum Exporting Countries (OPEC) is considering production cuts to stabilise oil prices. The Fed may slow its pace of rate hikes in response to tighter financial conditions and an associated growth scare. In turn, that could help relieve some of the upward pressure on the U.S. dollar. After a period of policy austerity, the Chinese authorities are already re-introducing stimulus.
In our view, it’s difficult to make the case for an imminent economic collapse—and persistent defensive sector outperformance—when 60% of U.S. industries are expanding. Rather, that’s a clear sign for investors to focus on cyclical sectors like tech as this aging business cycle continues (Exhibit 3).
The S&P 500® Index measures the performance of 500 U.S. large market-capitalisation stocks, and is intended to be a representative sample of leading companies across many industries within the U.S. economy.
The S&P 500® Information Technology Index is a subset of the S&P 500 Index, and measures the performance of leading companies within the U.S. tech industry.
The NYSE FANG+ Index provides exposure to a select group of highly-traded growth stocks of next generation technology and tech-enabled companies. It includes 10 highly liquid stocks that represent the top innovators across today’s tech and Internet/media companies.
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