FANG Stocks Just got Defanged
Nasdaq bellwethers Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Alphabet (NASDAQ:GOOGL) have lost a collective $200 billion in market cap over the last two trading sessions. Netflix is down nearly 20% in October, Amazon about 17%, Facebook and Alphabet over 10%. The four stocks are heavily weighted in the popular Nasdaq Invesco QQQ Trust (NASDAQ:QQQ) and make up about 22% of the fund’s holdings. The fund, which tracks the Nasdaq 100 index, is down 13% in the month of October, though a rally at the close saw 2.2% gains in the space of about 18 minutes on very heavy volume. The dizzying moves were mimicked in the broader indexes though not as amplified. Futures are up slightly as bargain hunters have swooped in, but who knows what they’ll be by the time Wall Street opens…
One Firm Remains Bullish on the “Plus A” Part of FANG
Despite the defanging of the FANGs, the popular addendum to the most popular group stocks in recent years, and the only one above $1 trillion in market cap, is still impressing one Wall Street firm. Jefferies put a buy rating on Apple (NASDAQ:AAPL) at $265, a 25% upside from current prices, citing the Apple Services segment as a recurring high margin business. This consists of the iCloud, the App Store, and Apple music. The firm projects that services could compose 25 percent of Apple’s business and 40 percent of its gross profit by the year 2022. “Applying a higher multiple compared to the lower margin hardware business, we see a significant opportunity for investors as Services alone could be worth $111 to $177 per share,” a Jefferies analyst wrote.
Pot Stocks Going Down With the Ship, Though Still Way Up
Along with the FANG stocks, pot stocks are getting hammered just as badly. Market leader Aurora Cannabis (NYSE:ACB) got slaughtered yesterday, down 16% on average volume. Unlike the FANG stocks though, there was no late day rally. The good news however is that on a long term chart, the move isn’t much, as these pot stocks move a lot like Bitcoin. Aurora is still up 145% on the year, and 36% since August. The Horizons Marijuana Life Sciences ETF (HMMJ.TO) is a similar story, with most of the July-September rally now being retraced. In a way, the dip looks almost bullish as long term charts look more stable than daily price movements. If 52 week lows get taken out though, that would be a different story.
Germany’s Angela Merkel to Step Down
German Chancellor Angela Merkel will step down rather than seek reelection in 2021. Merkel has been the political lynchpin and stabilizing force of the entire European Union since the sovereign debt crisis exploded in 2010. She is basically the Queen of Germany and the EU, having ruled the Eurozone’s economic powerhouse since 2005. Her absence could accelerate the decline of the Euro and the European Union itself, which admittedly may not survive past 2020 anyway depending on the aftereffects of Brexit and whether Brexit will be deal or no deal, and what happens to Italy in the mean time. She is likely to be replaced with a more nationalist figure that does not want to continue paying the debts of other European countries, which will have a sizeable impact on the European bond market, if stability continues as far as 2021, which is itself in doubt.
US Plans More Tariffs Against China If Meeting Fails
This could be a big one. The art of the deal is getting messy and dangerous. President Trump has made clear that if November’s scheduled talks with Chinese premier Xi Jinping go south. That would put incredible economic stress on US consumers and would certainly further damage the already beleaguered stock market. Trump, in an interview with Fox News late Monday, said “I think we will make a great deal with China, and it has to be great because they’ve drained our country.” Which raises the question, drained it of what? They are by far the biggest exporter of products into the United States, the opposite of draining, which is what Trump is railing against. They have drained it of dollars, exported to China in the form of trade deficits, but if those dollars come back to the US, inflation would skyrocket.