The back story: You don’t need me to tell you just how crazy everyone is for the so-called FANG stocks, the four or five tech giants – depending on if you want to let the acronym include two ‘A’ stocks – that have nearly kept this bull market running on their own at times.
The FANGs are Facebook (FB), Apple (AAPL), Netflix (NFLX) and Google [now called Alphabet (GOOG)], with some people including Amazon (AMZN) for good measure.
The set-up: Alphabet reported earnings late Monday, to some disappointment on Wall Street. Facebook (FB) reports today, with Amazon (AMZN) to follow Thursday and Apple (AAPL) scheduled for early next week. (Netflix reported on July 17, with stronger-than-expected sales for the second quarter despite a small earnings miss.)
The FANGs are so big that their pending reports have spawned gushing reports suggesting that the market and tech rally both will continue even if the big boys report bad news. MarketWatch quoted Josh Brown of The Reformed Broker as saying the uptrend is bigger than the FANGs. “There is enough happening under the surface in terms of rotation so that an off-quarter from an Amazon or Microsoft or whatever, is not going to end the bigger trend,” Brown said.
My take-away: While I’d agree with Brown that there is no reason to obsess over the FANGs, I disagree about what happens if they disappoint on earnings.
These companies fueled the frothy levels the market is at right now, and they’ll bring it back down too if they have declining earnings. If Facebook, Amazon and Apple join Google with earnings pullbacks, the market is not going to ignore it.
I’m not saying we should expect all of those earnings disappointments, but to assume you could weather that big an earnings storm without the market taking a hit means you have shut off your common sense. This market rally is not indestructible, and earnings misses from the biggest names are one thing that could destroy it.
Jeff Bishop is lead trader at TopStockPicks.com. He runs short-term trading strategies, using stocks, options and leveraged ETFs. At the time this article was published on RagingBull.com, he had no shares, options or open orders on any of the FANG stocks.