FAANG leads US equities revival in 2020

The top five US technology companies: Facebook, Amazon, Apple, Netflix and Alphabet (Google) – collectively known as FAANG have all got off to a strong start in 2020.

In fact, each stock, except Facebook, has outperformed the broader market, with the S&P 500 up 3% year-to-date (YOD). But will this bullish trend continue? IG gives its outlook on the FAANG index and its constituent companies.

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FAANG

The index has rallied sharply since June, as the bull market in equities revived and tech stocks led the way. It is now at all-time highs, but remains rather stretched, as witnessed by the distance to the 50-day SMA (3243), currently over 400 points or 10% away, according to chief market analyst at IG, Chris Beauchamp.

The dip in late January found support at 3244, creating a new higher low. A deeper retracement heads towards 3090, the low from late December.

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Facebook

Facebook delivered a strong conclusion to 2019, with full-year revenues up 27% to $70.7 billion, exceeding analysts’ expectations.

However, its share price fell in the wake of its results, with investors concerned about rising costs which led to a 4% decline in operating income to $24 billion over the period.

Costs will continue to rise in 2020 after Facebook CEO Mark Zuckerberg said that he intends to create a ‘privacy-focused’ social media platform built around six key principles: private interactions, encryption, reducing permanence, safety, interoperability and secure data storage.

Investment in this area is crucial for Facebook to regain users trust in the wake of the Cambridge Analytica scandal, which intensified regulatory oversight, as well as raising concerns about data security and the rise of fake news on the platform.

But even with all the negative PR, the company is still well positioned, with the social network remaining an invaluable resource for advertisers and, therefore, operating profit is expected to grow in 2020.

Facebook closed at $210 a share on Wednesday.

Facebook: technical analysis

2019 saw the price steadily recover from the late 2018 selloff, with the price finally reaching a new record in January 2020, at over $224.

Higher lows and higher highs have been in place since March, and with the 50-day, 100-day and 200-day all pointing higher, bullish crossovers in daily stochastics and MACD may continue to provide buying opportunities.

Amazon

Amazon also ended 2019 on a high, with net sales up 21% in its fourth quarter to $87.4 billion, edging above analysts’ expectations.

The e-commerce giant expects to carry this momentum forward into 2020, with the company forecasting net sales of between $69 billion - $73 billion, representing growth of 16% - 22% compared with Q1 last year.

However, operating income is expected fall, with Amazon looking to generate between $3 billion - $4.2 billion, compared with the $4.4 billion it delivered in Q1 2019.

Amazon closed at $2160 a share on Wednesday, with the stock up 13% YOD.

Amazon: technical analysis

For Amazon, 2019 was a mixed year. It spent the first half recovering 2018’s losses, moving back to the $205 high by early July. But then the share stumbled and remained stuck below $185 for most of the rest of the year.

Only in late 2019 did the price move back to $190, before rallying sharply right at the end of January and powering to new highs. As the moving averages turn higher, the uptrend becomes more obvious, and dips similar to December and January will remain buying opportunities.

Apple

Apple kicked off the new financial year by delivering all-time record revenue and earnings for iPhone, wearables and services.

The company posted quarterly revenue of $91.8 billion, an increase of 9%, an all-time record, and quarterly earnings per diluted share of $4.99, up 19 percent, also an all-time record.

‘We are thrilled to report Apple’s highest quarterly revenue ever, fuelled by strong demand for our iPhone 11 and iPhone 11 Pro models, and all-time records for Services and Wearables,’ Apple CEO Tim Cook said.

‘During the holiday quarter our active installed base of devices grew in each of our geographic segments and has now reached over 1.5 billion.

‘We see this as a powerful testament to the satisfaction, engagement and loyalty of our customers — and a great driver of our growth across the board,’ he added.

Apple closed at $327 a share on Wednesday, with the stock up 8% YOD.

Apple: technical analysis

The 2019 uptrend for Apple went into high gear from September, as the gains accelerated. The stock price had doubled by the end of the year and shows no sign of slowing down.

Rather than serious dips, the price merely consolidates, as we saw in September, late November and late January.

The daily stochastic indicator has turned higher, but daily MACD has yet to follow suit. However, a move above $328 may provide a fresh bullish signal.

Netflix

Netflix had a strong finish to 2019 with Q4 revenue up 31% year-over-year, bringing full-year revenue to over $20 billion and operating income up 62% to $2.6 billion.

In its final quarter of the year, the company also manged to surpass 100 million paid subscribers outside the US market, exceeding analysts’ expectations.

Looking ahead, the company forecasts global paid net adds of seven million in Q1 2020, compared with the 9.6 million it recorded in the same period a year prior, which was an all-time high in quarterly paid net adds. Netflix is also targeting a 16% operating margin in 2020, up 300 basis points year-over-year.

The largest question mark for Netflix in 2020, however, is how a rise in competition will impact its performance. Lots of media and tech companies have or are in the process of launching streaming services, though Netflix believes that by focusing on ‘pleasing members’ with exclusive content it can maintain its strong position in the streaming market.

‘In Q4, despite the big debut of Disney+ and the launch of Apple TV+, our viewing per membership grew both globally and in the US on a year over year basis, consistent with recent quarters,’ the company said.

Netflix closed at $380 a share on Wednesday, with the stock up 15% YOD.

Netflix: technical analysis

Netflix shot higher at the beginning of 2019, along with the broader market, and then went nowhere until July. It then gave back most of its gains from early in the year but found support at $252 before beginning a relentless move higher that now targets $385 and then the record high at $423.

Weakness early in the year found support at $322, so a move below here would suggest the near-term bounce has run its course.

Alphabet (Google)

Alphabet’s fourth quarter results came in slightly below analysts’ expectations, though revenues still grew 17.3% year-on-year to $46.1 billion. The company also saw operating profit fall short too at $9.3 billion.

‘Our investments in deep computer science, including artificial intelligence, ambient computing and cloud computing, provide a strong base for continued growth and new opportunities across Alphabet,” Alphabet and Google CEO Sundar Pichai said.

‘I’m really pleased with our continued progress in Search and in building two of our newer growth areas — YouTube, already at $15 billion in annual ad revenue, and Cloud, which is now on a $10 billion revenue run rate.’

Alphabet closed at $1518 a share, with the stock up 10% YOD.

Alphabet: technical analysis

The rally since July has seen the price recover and then (mostly) hold firmly above the 50-day SMA ($1402).

Dips have been short-lived, but so long as the sequence of higher lows and higher highs remains in place then the bullish trend remains in place. Late January weakness found support at $1410, so a move below this would suggest renewed near-term weakness.