Barron’s does it again
Better yet I should say Barron’s columnist Randall Forsyth does it again. What a fetching headline. ‘If it bleeds it leads.’ Mr. Forsyth, have you no shame?
The FAAMG stocks (Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOG) (NASDAQ:GOOGL) – for some reason Netflix (NASDAQ:NFLX) did not make the cut) had all the right stuff for the Covid-19 market. They were the antidote to anything cyclical that might be shot down by the new and deadly virus and its horrible impact on the economy. They just powered right through it, not missing a beat. They were safe bets and money just poured into the group, so much so, that, according to the column, these names without Netflix account for 22% of the S&P 500’s market value.
Their time may be passing for now and this is ok and to be expected
According to Forsyth,
The strength of the FAAMG stocks is that they’ve been supported by fundamentals and a macro environment that has rewarded their financial and operational advantages in a slow-growth world. An improvement in the economic outlook, however, would likely lead to a rotation from growth to cyclical value stocks. Antitrust threats also pose risks for these market leaders.
My question is, why is this featured as a negative “… They’ll take the rest of the market with them” in the context of the quote above? (you’ll need a Barron’s or Wall Street Journal subscription to read the full article) By the way, since the electronic edition of Barron’s is easily manipulated the headline above has been changed to “If the Big Five Falter, Rest of Stock Market Could be Deep Sixed.” This adds some conditionality to the dire assertion in the headline I used to title this post.
With all the fiscal stimulus ($2.3 trillion so far and counting) plus a Fed that is committed to keeping interest near zero for the foreseeable future, a very strong cyclical recovery should be in the offing. This would be especially true if the fear of Covid-19, driven home by the spike in new cases and deaths, causes masking and social distancing to become widely accepted as a deterrent. It does not take a rocket scientist to see that adherence to these two practices could dramatically change the trajectory of the pandemic without a vaccine or any additional closing down of the economy.
This looks more to me like a rotation and an opportunity in the 78% of the S&P stock market capitalization that have not fared as well since March or, better yet, in the small cap growth and value names that compose the Russell 2000, down 12% year to date.
Once again, the headline above and my humble retort points out my contention that when investing the media is not your friend.
What ‘s your take?
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.