Monster FANG Rally To End The Year

Another Santa Rally

The stock market usually does well in the week between Christmas and New Years Day. The fact that we got a stimulus during this week made the rally even stronger (S&P 500 was up 87 basis points). Plus, many investors probably don’t want to sell because they would rather pay taxes next year instead of this year. 

We can expect a lot of selling early next year in the hottest names. There might not be that much selling in the overall market though. The S&P 500 is up 15.6% year to date. That’s a better year than normal, but it’s not good enough to cause selling at the start of next year.

FANG Destroys Small Cap Growth

Monday was extremely interesting because some of the hottest stocks crashed even though the overall market rallied. The Russell 2000 fell 38 basis points as it was brought down by growth stocks. The index is on an 8-week winning streak which is the longest since February 2019. This index tends to go on long runs (up and down). Small cap growth fell 99 basis points which is pretty bad for a day where the Nasdaq was up 74 basis points. 

Large cap growth stocks destroyed small cap growth stocks. The Nasdaq 100 was up 1.01% while the average stock in the index was down 17 basis points. Of course, all the companies in that index are big. The smaller firms did even worse as I mentioned.

The FANG stocks were up 2.76% while the rest of the Nasdaq 100 was down 33 basis points. As you can see from the chart below, the IPO index had its worst performance versus the FANG+ index since FANG was created. The IPO lagged by more than 6%. They are usually correlated because of the growth trade.

The best performers in the group were Apple AAPL, Amazon AMZN, Facebook FB, and Google GOOGL. Apple was up 3.6% to a new record high for the first time since September 1st. It has a 31.7 PE ratio on 2022 earnings. For a company looking to grow earnings in the high single digits, most wouldn’t pay more than 25 times estimates. 

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