The FAANG stocks, whose mammoth valuations still dominate the weighting of the S&P 500 and have driven the bull market for a decade, are crucial to the market's ability to rally in 2019 after the worst year in a decade, according to UBS director of floor operations Art Cashin. The five FAANGs fell into bear markets in 2018 and then snapped their losing streak in the last week, sparking hopes of a broader market recovery. "You want to see if they can all demonstrate unified strength," said Cashin, per CNBC. "If they don't trade together again then we are going to have more volatility creep into the market." As the chart below shows, the FAANGs had a terrible 2018.

FAANGs Fall from 52-Week Highs

·     Facebook -38%

·     Amazon -25%

·     Apple -32%

·     Netflix -37%

·     Alphabet -19%

What It Means For Investors

Cashin’s outlook contrasts with market watchers such as Peter Boockvar, who deems the FAANG trade “dead." Boockvar recommends that investors get picky with tech plays and forecasts each stock will “trade on their own footing and not as a group.”

Cashin, for his part, says the FAANGs must “emerge in leadership.”

"There's supposedly a lot of money out there," says Cashin. He's looking for clear signals regarding the market's direction in mid-January, when there may be a “second leg up” after many investors are sure there is no residual tax selling. 

Pressure on Tech Behemoths

Bears point to the myriad of headwinds still facing the FAANG stocks, which have led many investors to turn away from growth plays into more defensive, value names. The five mega cap internet giants lost a combined $1 trillion in value during November’s sell-offs, with Facebook Inc. (FB) posting the worst annual performance. While Apple Inc. (AAPL) and Inc. (AMZN) managed to become the first U.S. corporations to surpass $1 trillion in market cap, both lost this status as the sector took a sharp turn for the worse in the second half of the year.

High valuations, decelerating growth, tightening monetary policy, macroeconomic uncertainty and the potential for heightened regulation are seen as some of the largest risks facing the FAANGs, per Bloomberg.  

Company specific issues, such as Amazon and Alphabet’s recent quarterly sales misses, Netflix Inc.’s (NFLX) giant multiple, Facebook’s continued warnings of slowing growth and waning demand for Apple’s iPhones also have triggered downturns. Meanwhile, Facebook and Google face rising political scrutiny in Washington and other global capitals regarding use of user data. 

What's Next for Investors?

These headwinds could make a sustained rebound more difficult for the FAANGs. As a result, investors may have to become tech stock pickers and select possible long-term winners such as Amazon and Netflix, or non-FAANG members such as legacy player Microsoft Corp. (MSFT). 

“We can just find better stocks, both in tech and outside of tech, that offer better growth, or better valuations, or fewer risks. The days where the only way you could outperform was to have a taste of the FAANGs are over,” said Mark Stoeckle, CEO of Adams Funds, in an interview with Bloomberg. Ultimately, given FAANGs outsized influence on major indexes, the FAANGs' continued weakness could continue to weigh on overall investor sentiment in 2019.