FAANG: Facebook, Apple, Amazon, Netflix, Google – they’ve always been considered the biggest and the best stocks on the market.
“Too big to fail,” right? Until now.
The NYFANG – an index made up of the familiar FAANG names along with Tesla, Alibaba, and Twitter – has fallen more than 11% in the past month alone.
By comparison, the Dow has risen 0.6%.
Last spring, big-tech led us out of the corona-crushed market, with the NYFANG catapulting the V-shaped recovery:
NYFANG in 2020
But now, as we enter a post-pandemic world, 2020’s outperformers are losing their luster:
NYFANG in 2021
Here’s the big question: Why are these “too big to fail” stocks failing?
Well, today, I’ll break down the exact reason. But that’s not the only question I’m asking.
As Profit Takeover traders, we need to look at this situation through the lens of Wall Street. And when you do that, “why” isn’t the most important question. It’s this:
Where’s the money?
As cash pours out of FAANG… where is it going? It’s not disappearing into thin air, I can tell you that. And we’re going to follow the cash straight to a new sector…
Straight to the new FAANG.
First, I’m going to answer the question of why. Why is FAANG plummeting?
Well, there isn’t a single answer here. But one is the same reason the rest of the market has spent this week in the red – and that’s inflation.
This time last year, inflation was relatively low due to the pandemic’s effect on the economy. Now, in 2021’s post-pandemic economy, commodity prices are rising at a rapid pace. April’s inflation, in fact, has moved at a speed we haven’t seen in 12 years.
The Consumer Price Index (CPI) released Wednesday, which measures costs of goods including energy and housing, rose 4.2% from a year ago, compared to economist estimates of 3.6%.
Now, the Fed isn’t concerned. Chairman Powell and Treasury Secretary Yellen (a former Fed head herself) both claimed that rising inflation is temporary and shouldn’t be cause to panic.
But investors aren’t so sure – especially those holding big tech.
That said, there’s one group of stocks ready to take FAANG’s place. A clear rotation trade is taking place in the market, and get this – old is new again.
Walmart, Target, Costco – the names that used to dominate the market? Well, they’re back.
Retail is the new FAANG.
Here’s what I mean. Let’s take a look at the Invesco QQQ Trust (Nasdaq:QQQ), an exchange-traded fund (ETF) that tracks the performance of the tech-heavy Nasdaq-100 (NDX).
QQQ over the past year
Over the past year, the QQQ has risen about 42.8%. Now, that’s not so bad when you look at it on its own. But these stocks are supposed to be the best of the best – and when you compare the QQQ to the retail ETF, it pales.
Folks, there’s a new sheriff in town. The SPDR S&P Retail ETF (NYSEARCA:XRT) tracks the performance of retail stocks in the S&P. Some of its holdings include American Eagle Outfitters Inc. (NYSE:AEO), Target Corp. (NYSE:TGT), and Sally Beauty Holdings Inc. (NYSE:SBH)…
And it’s blowing the QQQ out of the water:
XRT over the past year
Over the past year, the XRT has grown 140.5% – more than triple the performance of the QQQ.
Numbers don’t lie. The fall of FAANG means the rise of retail…
And with that fact in your trading arsenal, you’re set for Wall Street-level success.
If you have any questions about FAANG’s dethroning, then Ask Me Anything right here. Tomorrow, I’m answering a ton of reader questions…
And you might just see your name in our next Profit Takeover issue!
May 12 2021