Few investors amongst us won’t have heard of the exploits of the Famous Five, a group of four school friends and their faithful dog Timmy. This iconic group of lifelong friends, whilst on summer holidays in the English countryside would embark on a series of adventures which either resulted in the uncovering of buried treasure or the foiling of whatever criminal exploits were taking place around them.
Now, whilst the stock market is not the Dorset countryside and stocks and shares don’t need rescuing from erstwhile smugglers, today’s equity markets are arguably in trouble. It just so happens we do have an intrepid gang of five who are coming to its rescue.
Many investors following global markets will have, by now, seen the acronym “FAANGs” popping up. For those who have not, the FAANGs are a group of mega large stocks listed on the US equity market. Individually they are “Facebook, Amazon, Apple, Netflix and Google” and in the financial press of late it’s a rare day when this gang of five stocks is not hitting the headlines. These five stocks have established themselves as the very essence of what’s driving this current market.
So, as an alternative to the age-old adage of “buy low sell high” the market has continued to pile capital into these 5 large capitalised growth stocks called FANNGs. With the S&P 500 being calculated on a market cap basis the more these companies’ value expands the larger the proportion of the total market they occupy. This results in the fact that when Apple (the first company to reach $1 trillion in market capitalisation) has a bad day, its impact on the S&P 500 is such that it drags the entire US market down with it. The total market cap value of this exclusive club totals more than $3.25 trillion! To put that in perspective that’s $1.15 trillion more than the entire value of the UK FTSE 100.
Remember, this is just 5 stocks we are talking about here.