July 15, 2017

The Bulls are Alive Despite Falling FAANG’s

Posted in Uncategorized at 1:44 am by Keith Knutsson

In the past month, there has been a lot of concern surrounding the decline of tech stocks, specifically the FAANG’s or FAAMG’s (Facebook, Amazon, Apple, Netflix or Microsoft and Google). These stocks have helped the S&P 500 Index achieve a 9.5% return since the beginning of 2017, with 18% returns in the Information Technology (IT) sector and some large-capitalization with returns above 25%. However, despite popular belief these staggering returns do not contribute nearly as much to the overall performance of the S&P as some market speculators have claimed. One notable financial newspaper claimed without FAANG’s the S&P would only have returns of 1.4%, which is far from true

Although it makes sense, assuming tech stocks are the main support of the rallying economy, the impact of them is vastly exaggerated. The assumption is that the money was not invested in the excluded portion of the index, thus generating no return. In actuality, the money not invested can be deployed in alternative investments, such as real estate. According to a Goldman Sachs market report, the “rally has been driven by stronger earnings, sustained economic growth, and a still favorable monetary policy backdrop.” Their analysis of the current market situation is favorable to growth in the real estate sector, implying that interest rates are still at record lows encouraging investors to borrow and make deals happen.

 Sustained economic growth in the United States has been proven to be steady with job growth, upward wage trend and at 2.8-3.4% in accordance with the Goldman Sachs Current Activity Indicator, a proxy for real GDP growth. Looking outside of the US, growth looks to be equally supportive in developed markets like the Japan, UK and Eurozone. The G20 economies anticipate positive GDP growth, the first time since 2010. This proves the rally is less dependent on the FAANG’s and more favorable to a durable mix of strong earnings from various sectors. Capital flows around the world indicate a secure future in real estate. Goldman Sachs, along with other financial indicators, at Integrale Advisors’ Keith Knutsson concurs stating, “alternative investments, such as real estate will endure the temporary lull in tech stocks and are on a strong path for future growth.”

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