Wednesday, 25 October 2017
FAANG Stocks In Focus As Earnings Get Closer
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We know what you are thinking: who would dare to buy technology sector stocks when they trade at such high prices? Don’t worry. This question is not only bothering you, it is a major issue for most market participants around the globe. Let’s try to make sense out of it.
The third-quarter corporate earnings season has already begun and financials (as usual) came first. Surprisingly, they showed better-than-expected results, cheering investors and pushing up Wall Street top stock indexes to new record highs.
Analysts have previously warned about a potential downward correction of major stock indexes following Q3 results, as historically the third quarter tends to be the worst performer of the year.
Market players are paying close attention to the technology sector, a key drivers of this year’s stock rally and one of the best performing sectors of the economy.
In the twelve months leading to October 24, the tech-heavy Nasdaq index has grown an amazing 24 percent. Just to compare, the S&P 500 has added 19 percent for the same period.
The FAANG stocks (Facebook, Apple, Amazon, Netflix and Google’s mother company Alphabet) are expected to show good results and therefore, target prices were not modified.
A useful technique for investors is to look at money flows in order to understand how people are preparing for future earnings reports.
Money flows can be divided into three categories: smart (professional investors), momentum (retail investors) and short squeeze (quick jump in prices that push short investors out of their positions, adding upward pressure).
According to market research companies, the current configuration shows professional investors are neutral on Facebook, Apple, Amazon and Google, and negative when it comes to Netflix.
Retail investors, who are more easily cheered by figures, are very positive on Facebook and Apple, extremely positive with Amazon and Netflix and positive with Google.
Short squeeze looks neutral for Google, very positive for Netflix and mild positive for Amazon, Apple and Facebook.
Current conditions show that momentum investors are leading stocks higher, while professionals are opting for a rather moderate stance. An upward development of FAANG is likely if Trump’s tax reform will be implemented.
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