Megacap FAANG Bloc Collapses as Growth Stocks Lead Sell-Off

(Bloomberg) -- Shares of large-cap technology and internet stocks sank as investors fretted that a weaker outlook could make it harder to justify prices that are seen as elevated.

The so-called FAANG group of stocks, which refers to a quintet of high-growth names that have powered the market higher for much of 2018, saw pronounced weakness on Wednesday and were among the biggest drags to the overall market. Facebook Inc. dropped 3.6 percent while Netflix Inc. lost 7.1 percent; both were poised for their biggest one-day percentage loss in two weeks. Inc. lost 3.7 percent and Apple Inc. was down 1.4 percent. Alphabet Inc., the parent company of Google, shed 3.2 percent. All added to their losses throughout the trading day.

While the five stocks are classified in three different sectors, the decline was seen as spurred by a disappointing outlook from chipmaker Texas Instruments Inc., which sparked a broad decline in the technology sector.

“The FAANGs are overvalued and they became an over-crowded trade. This selloff is the culmination of the disappointments and negative guidances that we’ve seen, which is taking the air out of growth stocks,” said Michael Mullaney, director of global market research at Boston Partners Global Investors Inc. “We’re still overweight tech, but now the valuation picture has gotten such that any negative revision means you get absolutely slammed.”

The S&P 500 fell 1.6 percent on Wednesday, its sixth straight drop. The S&P 500 Growth Index was down 1.9 percent while the value equivalent was off 1.2 percent.

The FAANG group will likely remain in focus as they report quarterly results. Both Alphabet and Amazon are scheduled to release their reports Thursday after the market closes, while Facebook and Apple report next week.

Despite the losses on the day, most of the FAANG stocks remain in solidly higher territory for 2018. Netflix is up more than 60 percent so far this year, while Amazon has surged more than 45 percent. The outlier is Facebook, which has shed a third of its value since its historic second-quarter earnings meltdown, and is down more than 15 percent on the year.

©2018 Bloomberg L.P.