The most important stocks in the world are now in a bear market.
After a rough day on Wall Street yesterday, every single one of the giant tech companies that have come to dominate the post-2008 rally the FAANG stocks has now fallen by at least 20% from its peak.
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And now, like the Grand Old Duke of York, they're marching them down again.
The dominoes topple one by one
Not long ago this summer, in fact computer hardware group Apple became the world's first $1trn company. Amazon, the great disruptor, followed suit.
Yet today, the world has no trillion-dollar companies. They've both lost those crowns as their share prices have fallen in recent months.
What's interesting is that, despite the acronym, they haven't moved as one single amorphous mass. Streaming group Netflix was the first to peak hitting its high for the year in early July. The group then missed forecasts for subscriber growth, disappointing markets, and it never managed to regain the high.
Then Facebook and Alphabet followed, peaking at the end of July, although each for different reasons. Already beset by privacy concerns, Facebook warned in its second-quarter results that daily user counts had fallen in Europe and stagnated in the US. That was disappointing.
Alphabet, on the other hand, reported great second-quarter earnings, but that was the peak. And in October, its third quarter disappointed.
Amazon, meanwhile, peaked in early September. In fact, it pretty much peaked at the point it became the second $1trn company. At that point, it had risen by a staggering 75% in 2018 alone. In short, it was positioned for perfection.
Then, in its third quarter results in October, turnover and outlook fell short of hopes, despite a decent showing on profits. So a disappointed market had every excuse it needed to sell. Which it duly did.
Finally, Apple peaked in early October. Investors were rattled and disappointed by its decision to stop talking about how many iPhones it is selling. Which is a worry, because Apple is still basically dependent on selling iPhones.
What's the common thread here? Despite the stupid acronym (always look out for stupid acronyms that nevertheless gain popularity remember the BRICS, too), these are all very different companies.
Netflix spends fortunes on making and buying films and TV shows.
Facebook creates addictive and soul-destroying ways of showing off to people you never wanted to stay in touch with in the first place, with the goal of selling your personal data without you knowing about it.
(Look, OK, I'm being harsh for effect here. I use WhatsApp and think it's great. However, Facebook is undeniably the most sleekit great Scottish word, start using it if you don't already of all the tech companies.)
Alphabet is the world's best search engine and classified ads server with a load of weird side projects attached.
Amazon sells just about everything, and effectively has its own version of Netflix bolted on as a side benefit for customers. I have both Netflix and Amazon Prime and I would say I spend roughly the same amount of time watching each of them. Which does make me wonder about their respective valuations.
Finally, Apple makes well-designed, mass-market luxury goods. Which is a superb business model.
Beyond the fact that they're all high profile and all tech, they really don't have that much in common. So what's going on?
One word sums up the problem here
There are lots of "macro" reasons to be glum about tech stocks. As we've mentioned lots of times, global governments want to crack down on them in terms of the tax they pay the politicians want to dip their beaks in the extraordinary profits these companies are making.
And of course, as these companies grow more entrenched in our lives, we're increasingly wary of our data and what they know about us.
But reading back through the above, I have to conclude that the "big picture" stuff is only a minor part of the story. Instead, one word stands out in each of the "topping out" stories. That word is "disappointed".
Here's the problem: while central banks were standing behind the market and interest rates were going down, there was no reason to worry too much about fundamentals.
But now, the free money is being taken away. That means companies need to deliver. And these companies in particular had so much weight of expectation on top of them that it was inevitable that they'd be unable to sustain the record-breaking runs for much longer.
So, more than anything else, this is about the market changing its view of things. The rose-tinted glasses are being taken off.
If you need any more evidence of this, take a look at the ultimate creation of the free money era bitcoin.
The king of the cryptocurrencies spent most of the last couple of months sitting in virtual suspended animation. Now it's absolutely cratering.
Investors are waking up from a wonderful central-bank-induced dream. The reality they are waking into is rather more harsh. Expect more disappointment.
John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
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