‘FAANG’ Stocks and Their Role In The Markets

If you follow any form of financial market publication, news source or have ever watched 15 minutes of Bloomberg, then you will undoubtedly have heard the term ‘FAANG’ stocks.

But what does ‘FAANG’ mean?

In simple terms, it is the acronym for the shares of Facebook, Amazon, Apple, Netflix, and Google (now Alphabet inc.) Coined due to the popularity of these individual stocks, the term’FAANG’ has provided investors with spectacular returns by speculating in the booming sector.

Why are they so important?

The reason is that as these companies grew, they became ever popular with investors due to the phenomenal returns, and subsequently increased the market cap of these companies enormously.

The sheer size of these companies is unimaginable.

In 2018, both Amazon and Apple crossed the threshold to becoming the only two companies worth over $1 Trillion. Since then, they have both since dropped below that level, but for a time it held comfortably. This example illustrates the gigantic scale of these companies and that particular aspect is what we need to focus our attention on.

A side effect of scale

Because the ‘FAANG’ stocks have such a huge market cap it means that they carry a fairly hefty weighting within the Index’s to which they belong. Initially, this was just the Nasdaq (NDX100) but because they have become such powerhouse companies they have all found their spot within the S&P 500, as 5 of the leading companies in the United States.

Such is the popularity and importance of these stocks that they have elevated themselves further, there is now the NYSE FANG Index dedicated to representing the ‘segment of the technology and consumer discretionary sectors consisting of highly-traded growth stocks of technology and tech-enabled companies such as Facebook, Apple, Amazon, Netflix and Alphabet’s Google.’

The chart above shows clearly how much sway these ‘FAANG’ stocks can have on the S&P just via the similar price action shown on the NYSE FANG Index (Green) and the S&P500 Index (Orange).

A Way to trade the ‘FAANG’ space

How can paying attention to these particular stocks help in day-to-day trading? Well, because the ‘FAANG’ stocks have the weighting that they do within the S&P and Nasdaq Index’s then by paying attention to the individual stocks and the FANG Index it could give us insight into the potential moves within the respective indices.

For example, if we are seeing both Apple (AAPL) and Amazon (AMZN) beginning to rally then and other FAANG members behaving the same way, there is a higher probability that the Nasdaq/S&P could also follow suit. Essentially, this allows us to take a position with this acting as a form of confirmation.

This article is written by a GO Markets Analyst and is based on their independent analysis. They remain fully responsible for the views expressed as well as any remaining error or omissions. Trading Forex and Derivatives carries a high level of risk.

Sources: The Fortune Teller, Seeking Alpha, Bloomberg