Technology (and Silver) are Golden. Most FANG Stocks Have Doubled Since March.
Facebook, Apple, Amazon, Netflix and Nvidia have all doubled off of their March lows.
Technology has scored gains of 58% since the lows of March 23, 2020. That compares to a notable rally of 45% in the Dow Jones Industrial Average. If you’ve attended a retreat, you know now in spades why being overweight in technology, particularly Facebook, Apple, Amazon, Netflix, Nvidia and Google, in the growth funds, and even having an extra hot slice of technology, is advantageous. As you know, this is something that we examined the data on, and it looked like things would go our way. Now, the strategy is showing up in your wallet.
Technology and Silver are Golden Chart
As you can see in the chart above, silver has been the real gold of the Spring Rally (after March showers), having doubled off of its March 2020 lows. That is one of the reasons why silver was the star of my most recent gold blog. (Click to read.)
Technology as a Safe Haven Investment
Gold and silver are often thought of as safe haven investments – what investors turn to out of fear, particularly when stocks head south and recessions devalue Main Street wealth and purchasing power. However, when you think about what we can’t live without these days, particularly in a Work from Home and Educate from Home world, it’s technology. Even when cities open up again, we’ll still be hyper connected to our devices.
Many technology companies will make Work from Home a permanent option for a large percentage of their work force. That doesn’t bode well for commercial real estate, autos, airlines, hotels, but makes Zoom Video and other websites that keep us connected and sharing indispensable. Click to read my blog on how airline revenue plunged 85% in the 2nd quarter.
There Are a Few Noteworthy Issues, However
So, why not just fill up your 401K with technology stocks and funds? There are many problems with going all in on FANG (Facebook, Amazon, Apple, Netflix and Google) and technology stocks in your wealth strategy. Below are just a few of them.
Do you like paying five or ten times retail? Most of the technology companies are trading at very high multiples. Yes, Zoom’s revenue grew by 169% in the most recent quarter and the company is on fire. But is it worth a 1400 price-earnings ratio, when the average is 16-17? Apple has surprised investors with its resiliency, increasing revenue 11% in the 2nd quarter to $59.7 billion despite having many retail stores closed. But should a company that earns $55.26 billion annually be worth $1.85 trillion, with a forward P/E of 34? In the next quarter, if Apple’s revenue and income come in at 2Q levels, it will be a contraction of last year’s performance, making the high P/E even more difficult to justify.
While we will continue to need our technology, many technology share prices are above even interstellar growth – trading in multiples not seen since the Dot Com Bubble burst. Apple is not the only tech company that will fall short in the 3rd quarter if they stay on course with current revenue and income trends – pushing the lofty valuations even higher. It’s hard to make the case for such irrational exuberance while we’re still in the midst of an unprecedented pandemic and recession.
Price-Earnings Ratio (CAPE) vs. Long-Term Interest Rates
A Sinking Tide Grounds All Ships
Technology companies are not immune to downturns. FANG stocks dropped 29% or more in February of this year, along with the rest of the general marketplace. (The Dow Jones Industrial Average plunged 38% in the same period.) The losses were widespread, with losses of -38.6% (Facebook), -31% (Apple), -25% (Amazon), -30.8% (Microsoft), -35% (Netflix), -33.7% (Google) from the highs of February 19, 2020, to the lows of March 23, 2020. Yes, the industry has recovered and then some. However, as S&P500 Senior Index Analyst Howard Silverblatt explained in a note on July 31, 2020, “Fear of losing out by individuals, the need to make the numbers by money managers, and the universal need to believe appear to dominate. As for doomsayers and (shocked) short-sellers, eventually they will be right, but when?”
The Paper Money Trail May Result in a Credit Downgrade
The rally was also stoked by the stimulus package, which most technology companies cited as adding fuel to their earnings in May and June, after a troublesome April. The package expired July 31, 2020. Congress is expected to pass another round of relief soon. However, there is a question as to whether it will be as generous as the first round was. There is also 1) a ballooning public debt of $26.5 trillion that puts the U.S. AAA rating in greater peril, 2) alarmingly high unemployment, with 30.2 million U.S. citizens claiming unemployment benefits, 3) over half of the S&P500 near or in junk bond territory, and 4) a prediction of an annual GDP contraction in the U.S. in 2020 of -8.0%. Canada was downgraded by Fitch Ratings to AA+.
Apple’s New iOS 14 Takes a Bite Out of Advertising Reliant Technology
Facebook and Google have warned that when iOS 14 rolls out in the fall, their earnings could be negatively impacted. With the new software, all apps will be required to obtain user permission before tracking.
No One is Talking About a V-Shaped Recovery Anymore
Hopes of putting the pandemic in the rearview mirror have dissipated. In the most recent World Economic Outlook, the International Monetary Fund pegged the 2020 global contraction at -4.9%, with the U.S. sinking -8.0%, Europe -10.2%, Canada -8.4%, Russia -6.6% and Latin America -9.4%. China might manage to stay in the black with 1.0% growth. This is substantially lower than the April forecast.
In the advance estimate, the Bureau of Economic Analysis reported that the U.S. economy contracted -32.9% in the 2nd quarter of 2020. As Federal Reserve Board Chairman Jerome Powell noted on July 29, 2020, in his press conference, “The contraction in GDP in the 2nd quarter will likely be the largest on record.” Learn more in my blog from July 30, 2020.
Being properly diversified and overweighting strength, like technology and silver, is a good idea. However, due to the volatility of stocks in general, the intensified risk of funds and fund companies (which is outlined in my gold blog), the unprecedented recession, the pandemic and the massive amount of over-leverage, it’s not going to be a good idea to place all of your eggs in any one basket. A carefully designed and diversified plan that is regularly rebalanced, where you know what is safe and what is hot, is time-proven, at a time when most people are losing more than half of their wealth in each of the last two recessions. Market timing doesn’t work (jumping all in or all out). Buy & Hope has cost investors more than half of their retirement in the last two recessions, where desperate investors must hope and pray the bull markets drag them back to even. FOMO (Fear of Missing Out) doesn’t work. Our easy-as-a-pie-chart nest egg strategies with 1-3 times a year rebalancing have been 21st Century Wealth Preservers.
Lean into technology, particularly in your growth funds, in a carefully balanced plan. Consider adding an extra hot slice or two, and dollar-cost-averaging into it so you’re not buying at an all-time high. Know what is safe in a world where bonds are losing money and becoming illiquid, and money market funds have redemption gates and liquidity fees. All of this is easier than you might imagine, when you learn the ABCs of Money that we all should have received in high school. Now is the time to do this. If you wait for the headlines, it’s always too late to protect yourself. As we saw in late February/early March, when the markets plunged without any warning, the smart money always moves first – and fast.
Learn the ABCs of Money that we all should have received in high school at our Oct. 3-5, 2020 Investor Educational Retreat. Click on the banner ad below for additional information on the Oct. 3-5, 2020 Online Financial Empowerment Retreat. Families receive a discount for attending together. Call 310-430-2397 or email info@NataliePace.com for to get rates.
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Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.
ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.
Information has been obtained from sources believed to be reliable. However, NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.
About Natalie Pace
Natalie Pace's easy as a pie chart nest egg strategies earned gains in the last two recessions and have outperformed the bull markets in between. That is why her Investor Educational Retreats, books and private coaching are enthusiastically recommended by Nobel Prize winning economist Gary S. Becker, TD AMERITRADE chairman Joe Moglia, Kay Koplovitz and many Main Street investors who have transformed their lives using her Thrive Budget and investing strategies. Click to view a video testimonial from Nilo Bolden.
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Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Power of 8 Billion: It's Up to Us, The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She is a repeat guest & speaker on national news shows and stages. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.