Year to Date Performance of FAANG vs. the S&P 500
The saying is “the stock market goes up like a staircase and goes down like an elevator”. When the average investor experiences this first hand these “elevator rides” can generate high stress leading to poor judgement and execution.
We welcome occasional corrections in the stock market as “healthy” events needed for continued long-term growth.
Some key reasons for the recent stock market correction:
- Market corrections are often the result of unrealistic valuations in a number of large stocks or a specific market sector.
- The latest correction is largely the result of high valuations in the technology sector, most notably FAANG (Facebook, Apple, Amazon, Netflix and Google).
- While the S&P 500 as a whole was down 10% during the recent correction, the Information Technology sector within the index, fell over 12%. These FAANG names played a major role in the recent decline.
- Because of the relatively large size of the FAANG stocks (13% of S&P 500 market weight), their selloff had a major effect on the performance of the entire stock market.
- It is important to recognize that the correction was not the result of a negative economic outlook, but rather a healthy reaction to the overvaluation of a select few names.
Technology Sector has had a major impact on Year to Date S&P 500 Performance
At Aventine Financial we monitor a number of market indicators, both fundamental and technical, to evaluate whether a significant decline is more likely than not in the near term. Our indicators currently do not show that a bear market or recession is likely in the next 6-12 months.
It is important to work with a financial advisor to help you avoid overvalued investments, eliminate emotions, and leverage prudent investment decisions. Stock market corrections can be a net positive for both the short-term and long-term growth of your portfolio.
Schedule a meeting today and see how we can help.
Until next time, all the best!
By: Christopher Wills, CPA, CFA, CFP