FAANGs - What Lockdown??? - Reflation Trade
And what the performance would have looked like if you had put an equal dollar weighted amount into each, at the earliest point you were able to, i understand that this is impossible to time or predict, but what it does do, is it serves to illustrate just how skewed the overall market performance is, when you analyze the best performers.
In terms of drawdown during the global lockdown?
Minimal, in terms of peak to trough move, the global lockdown did not measure above a slightly above average drawdown, in fact, the drop in 2019-2019 was more severe, at a 36% drop, versus the 27% drop experienced recently.
What is more interesting is that the lockdown, if anything is allowing these already MASSIVE companies to gobble up even more of the market share, when compared with the real economy (i.e. small/ mid-size business)
In fact, YTD, the FAANGs are UP close to 27%, versus the Russell 2000, which more closely represents smaller sized businesses, which is DOWN close to 21.5%
I find this to be slightly troubling, because the FAANGs are not all stocks you would expect to boom during the global lockdown. Yet, they are all doing extremely well, compared with the broader market.
Here are 4 of the 5 FAANGs ( FB , AAPL , NFLX , GOOGL )
Here is AMZN
As you can see, both GOOGL and FB are both doing VERY well, considering they are predominantly advertising platforms for businesses...you know, the businesses that are shutting down in record numbers, furloughing staff and cutting hours. I assume that this surge in stock price has nothing to do with the Fed liquidity hose and is all to do with savvy business owners all seamlessly switching to an online E-commerce business model.
AMZN and NFLX are no surprises, these are the quintessential 'stay-at-home' bet, so i am not surprised at their relative out-performance.
AAPL is no real surprise either, simply due to the overwhelming size of the company, as well as the generally healthy (a couple hundered billion of cash laying around doesn't hurt either to boost investor confidence).
I will close with this, prior to the market crash and global lockdown, these same stocks were being derided by many for being fundamentally overvalued, add in a global lockdown and a few trillion in stimulus and here we are.
The lesson is...do not underestimate how irrational a market can be...trade what is actually happening...not what you THINK should happen...
Clearly, the reflation trade is on.
IMO i wouldn't count on that recovery cause the missing consumers will drag the overall economy down for the next months - coming Quartal figures will show.