October hasn’t been kind to U.S. stocks as the technology sector continues to get trounced with the S&P 500 playing a game of “Follow the Leader ” with the Nasdaq Composite, heading into correction territory with as much as a 10% slide from its 52-week high. Despite this, does the latest sell-off in U.S. equities set the stage for a year-end rally?
If stocks, particularly within the technology sector, are to come back, it will need some help from the heaviest of hitters–the FANG (Facebook, Amazon, Netflix, Google) stocks, which have been languishing for the most part amid October’s sell-off. However, they are the same names that helped spur the 10-year bull run and if the markets want to end 2018 on a positive note, it will need the FANG stocks to perform.
Of course, however, some analysts say that a year-end comeback will be much harder than it sounds.
“We are increasingly thinking a rally into year-end will be harder to come by as lower liquidity and concerns on peaking growth weigh on the S&P and an investor base in defense mode,” strategists at Morgan Stanley noted.
Related: Trouble Mounts for Italy ETF
The Nasdaq Composite was down over 200 points Friday as the once-heralded FANG stocks continued to sell off. On Wednesday, the Nasdaq experienced its worst loss since August 2011 as companies like Texas Instruments and AT&T reported weak third-quarter results.
After the markets closed on Thursday, Amazon reported better-than-expected earnings, but shares of the online retailer fell after hours by as much as 8% and another 8% to start Friday’s trading session. Amazon’s earnings per share came in at $5.75 versus forecasts of $3.14, but revenue generated came in at $56.6 billion as opposed to the estimated $57.10 million expected by analysts.
Adding fuel to the revenue miss flame was a weaker-than-expected fourth-quarter guidance, which came in between $2.1 billion and $3.6 billion–under the $3.8 billion estimate. Earlier this month, Amazon announced it would increase minimum wage to $15 per hour for all U.S. workers, which it factored into its fourth-quarter revenue guidance.
Netflix’s third-quarter revenue came in exactly at the estimated $4 billion expected per a Refinitiv consensus estimate, but bested earnings per share (EPS) estimates of 68 cents with 89 cents for the third quarter. Furthermore, subscriber additions came in at 6.96 million with domestic subscriber additions reaching 1.09 million versus 673,800 estimated, and international subscriber additions reaching 5.87 million as opposed to the 4.46 million estimated.
Furthermore, Netflix also announced a gain of 370,000 net memberships in the U.S. and 3.2 million internationally, beating its initial forecast of 2.3 million new users.
Google parent company Alphabet posted revenues of $33.7 billion–a 21% year-on-year increase, but still fell short of forecasted revenue of $34.05 billion. As a result, Alphabet stock fell by about 3.3% in the hours after it announced its earnings and fell another 3% in Friday’s early session.
This leaves Facebook as the sole company from the FANG stocks who has yet to report their latest earnings. They are scheduled to release their fiscal year fourth-quarter results on October 30.
Some market experts feel that despite what FANG stocks do, the U.S. capital markets will continue to thrive. According to economist Mohamed El-Erian of Allianz, the latest sell-offs are more of a “regime change” where we could see value continue to come to the forefront and the growth-momentum plays of the decade-long bull run come out of favor.
“I don’t think the party is over. I think what we are seeing is a transition in regimes,” El-Erian told CNBC. “One from where markets were comforted by ample, predictable liquidity to now having to recognize that divergent fundamentals are going to be the driver of asset prices.”
Everyone loves a comeback story and investors are certainly hoping for one–preferably before the end of the year.
For more market news, visit ETFTrends.com.