When you consider the fact that traders have been overpaying for FAANG stocks, the recent selloff starts to make a lot of sense. Everyone piled up into this trade and it pretty much pushed the rest of the market higher. But it was too easy and that never ends well because you are being led by a herd. The thing is, when a stock gets ahead of itself, when it grows faster than the actual company, things can get ugly (See charts below). This is something people fail to understand. Growth stocks are great if you can buy them on the cheap. At a lower level, a company like Apple or Netflix are attractive investments.
But now sentiment is turning. A substantial number of investors believe the bull market is over. This has psychological ramifications for the overall market and it’s a cause for concern. For many, taking profits is the only prudent thing to do here. Nobody wants to kick themselves for not selling when prices were high. That’s the impact of market fluctuations and there’s no telling where we might go next.
Market Cap losses since their 52-week highs:
Facebook: $250 billion
Amazon: $255 billion
Apple: $222 billion
Netflix: $63 billion
Google (Alphabet): $155 billion