The Standard & Poor’s 500 index is off to a strong start to the week, up another 0.6 percent to new all-time highs. While fresh highs have been a routine occurrence throughout the eight-year-old bull market, a handful of familiar names are conspicuously absent from the recent rally.
Facebook (Nasdaq: FB), Amazon.com ( AMZN), Apple Inc. ( AAPL), Netflix ( NFLX) and Alphabet ( GOOG, GOOGL), five huge growth stocks collectively known as FAANG, have all lagged the market so far this week. These five stocks have been top performers throughout the past eight years, with returns ranging from an 84 percent gain for Apple to more than a 1,000 percent gain for Netflix.
FAANG stocks led the market to new highs in 2017, delivering year-to-date returns of between 22 percent and 47 percent. However, this week’s trading action once again has investors wondering whether FAANG stocks have finally lost their bite.
[See: The 25 Best Blue-Chip Stocks to Buy for 2017.]
Financial analytics firm S3 Partners recently reported that traders have been increasing their bearish bets against the FAANG stocks. According to S3 Partners director Brett Weiss, short interest among FAANG stocks jumped by 7.6 percent from Aug. 15 to Sept. 28, reaching a collective $27.3 billion in size.
The good news for investors is that short sellers may not necessarily see anything specifically wrong with the popular FAANG stocks. Instead, they may see them as a cheap way to hedge against the overall market as it makes new highs.
“As the market continues to hit highs almost daily, these in-favor companies could see a higher demand to add to shorts,” Weiss says. “All of these companies continue to trade at general collateral levels, the cheapest fee [for the] easiest-to-borrow stocks.”
However, some analysts have grown skeptical of the size, market weighting and valuations of the FAANG group. in June, Goldman Sachs analyst Robert Boroujerdi said Facebook, Amazon, Apple, Microsoft Corp. ( MSFT) and Google have created a “valuation air pocket” in the market due to their size and relative outperformance. That group is known as FAAMG stocks, since Microsoft replaces Netflix in the group.
[Read: 10 Reasons Why Everyone Should Own Facebook Stock.]
“This outperformance, driven by secular growth and the death of the reflation narrative, has created positioning extremes, factor crowding and difficult-to-decipher risk narratives,” Boroujerdi wrote.
Boroujerdi’s warning initially triggered a sell-off in the FAAMG stocks. Facebook and Microsoft have since recovered, but Apple, Alphabet and Amazon shares are all still trading below their June 8 closing prices.
More from U.S. News
8 Tech Funds to Buy to Invest in the Future
9 of the Market’s Best Growth Stocks
The 9 Best Investors of All Time
FAANG Stocks Left Behind as Market Makes New Highs originally appeared on usnews.com
