RIP FANG: 2013 – 2018

In early 2013, Mad Money host Jim Cramer asked his viewers if their portfolios had FANGs.

He was talking about the formidable foursome of Facebook, Amazon, Netflix, and Google. These were the companies that had a chance to dominate the market over the next few years.

The name stuck. So did Cramer’s story. Each of these stocks has gone on to post incredible gains since he first lumped them together way back in 2013.

But in 2018, we’re going to bury the FANGs.

No, I don’t think Wall Street’s most popular names like Facebook and Netflix are headed for the edge of a cliff. But buying the FANGs has quickly morphed into a “can’t lose” investing strategy. The cat is out of the bag. Everyone is trying to cash in on this market meme.

Face facts: investing in 2017 has been easy. Buy one of the popular tech stocks. Then sit back and wait for the gains to roll in. That’s it!

My next wild prediction for 2018 is that the easy ride for the FANG stocks will finally end. These stocks will stop rocketing higher every month. Some of them might even underperform the averages.

When we turn back the clock to look for signs of a slowdown, the first event that will stick out will be the November launch of the NYSE FANG+ Index futures. This market offering trimmed the fat and gave us the most-hyped tech names to trade — in one package.

The index is made up of the four original FANGs plus Alibaba, Baidu, Nvidia, Tesla and Twitter. The FANG+ Index futures has packed the market’s hottest stocks into one trading vehicle. FANG is all grown up. It’s now an actual index with its own futures contracts. As I mentioned the day it launched: that should set off some alarm bells.

If the FANGs do start down the road toward mediocre returns, we can point to the launch of FANG+ Index futures as tech’s harbinger of doom.

To be clear, I’m not calling a market top or even a top in any of the hot tech stocks that have juiced the market’s returns this year. In real life, market tops are downright impossible to call. We can only piece together the possible causes after the dust clears.

But I do expect many of these world-beating stocks will come under pressure in 2018 because of how well they’ve done. Facebook and Google are already attracting negative attention over privacy concerns. There are others questioning whether Amazon is quickly becoming a retail monopoly. In short, we’re overdue for some backlash. Sweetheart status for even the most popular companies is never permanent.

The market gods have given us a tremendous gift. Over the past 12 months, we’ve enjoyed near-perfect trading conditions. Most stocks have moved steadily higher. The major averages haven’t even posted a 5% pullback. Fear and volatility have evaporated.

We can safely say the bull market has grown up. This year’s melt-up has finally awakened the bulls. While the herd’s excitement grows, it’s time for us to look beyond the “can’t lose” FANGs and find the trades no one else is talking about.

Instead of tempting death by shorting any of these powerful companies, a better move is to simply break up the meme. The entire investing world is lumping these household names into one. The contrarian in me says that means it’s time for them to go their separate ways. After all, these companies are all fighting to win the top spot in tech. For the most part, they’ve moved together in 2017. That can’t last forever.

Look for a new group of high-flyers to take the FANGs place in 2018…

Sincerely,

Greg Guenthner
for The Daily Reckoning

The Daily Reckoning