Facebook Inc. (FB), Amazon.com Inc. (AMZN), Apple Inc. (AAPL), Netflix Inc. (NFLX) and Alphabet Inc. (GOOGL), collectively known as the FAANG stocks, have been surging higher all year, raising the question of when should profit taking kick in? According to Bespoke Investment Group, apparently not during the next two weeks, given historical patterns.
According to a report in The Wall Street Journal, citing data from the investment company, the FAANG stocks have all traded higher from Oct. 10 to Oct. 24, gaining on average 7.1% in recent years. That marks the best performance for their shares for all of the year, from a historical perspective. It doesn't hurt that the middle of October is the start of third-quarter earnings season, when technology and social media companies offer up their results for the three months ended in September and provide a perspective on how the remainder of the year will fare. Typically, FAANG stocks have a strong showing in the third quarter, which has sent their stocks higher over the years. The Journal pointed to Netflix as one example. In the third quarter of last year, subscriber numbers saw a big uptick, which resulted in shares jumping 20% in after-hours action. Amazon had better-than-expected third-quarter earnings back in 2015 that sent that stock more than 10% higher, noted the Journal. (See also: FAANG Short Interest Up 7.6% Since Mid-August.)
When Will the Party End?
In the case of Netflix, analysts are bracing for it to report upside on the subscriber front again when it weighs in with third-quarter earnings Oct. 16. That should bode well for the share price, at least shortly after it reports quarterly results. Facebook is slated to report quarterly earnings Nov. 1, while Amazon and Google are scheduled for Oct. 26 and Apple’s turn is on Nov. 2.
Lots of Wall Street watchers are predicting the FAANG stocks will have at least in-line earnings, with some expecting upside out of the likes of Facebook and Amazon for the three months ended in September. As for Apple, while investors and analysts will be paying attention to results, they will be much more focused on what the Cupertino, Calif., company has to say about sales so far of its iPhone 8 and 8 Plus and pre-orders for the iPhone X. (See also: FAANG Stocks Reignite Mutual Funds.)
Investors may see the shares of the FAANG stocks, which are already up double digits so far this year, march higher during the next few days, but Bespoke Investment Group cautioned that the party won’t last too long. Once we get into November and holiday shopping, the returns on FAANG stocks tend to “deteriorate” with shares historically losing an average of 2.3% in the first two weeks of the month.