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FAANG stocks and COVID-19: How these powerhouses are still on top



FAANG stocks and COVID-19: How these powerhouses are still on top 1

By Robert Francis, Australian Managing Director of global multi-asset investment platform eToro

The Big Tech superstocks including Facebook, Amazon, Apple, Netflix and Google – known as ‘FAANG’ aren’t just surviving the pandemic, they’re thriving.

Playing a major role combating the novel coronavirus, FAANG companies have grasped the opportunity to shine in the crisis hour.

Each member of the FAANG group has proven to be an investing powerhouse, and strongly positioned for the new normal. With enormous market capitalisations, further supported by measures like growing platform and cost mitigation strategies through remote work, these companies are proving to be more of a need, rather than a want for consumers.

For instance, Netflix emerged as a key performer, rising by 25 per cent on a year-to-date basis, with people consuming more content, while being confined to their homes.

Shares of Apple and Google gained 61 per cent and 14 per cent respectively year-to-date. While Facebook’s shares gained 29 per cent in the same period, Netflix’s share prices increased by 64 per cent and Amazon too gained 77 per cent.

According to Goldman Sach, FAANG stocks make up 21 per cent of the entire S&P 500’s market value, which means they have the highest market concentration and a dominant role in the overall performance of the stock market.

Why do investors love FAANG stocks?

Most retail investors favour FAANG stocks based on the fact that they are ascendant, well recognised brands – and it’s easy for retail investors to understand how these companies make money.If you break it down, it’s clear to see why investors are taking the plunge.

Facebook, which owns four of the seven most-visited social media platforms in the world, including Facebook, Facebook Messenger, Instagram and WhatsApp, now has over 3 billion users worldwide. And it’s found that the company is still in the relatively early innings of its growth, due to the fact that Facebook still hasn’t monetised Facebook Messenger or WhatsApp. Once Facebook begins monetising these highly popular platforms, it’s expected that it will see a significant surge in sales and cash flow.

As the current king of domestic streaming content, Netflix has surged over 50 per cent this year, outpacing the broader market. In the first two quarters of 2020 alone, Netflix added nearly 25 million global subscribers, citing the coronavirus pandemic as providing the unexpected flurry. While the company told investors it expects a slower burn in the back half of 2020, many investors are expecting the COVID-19 bump to be long-lasting.

Now over 20-years old, Netflix has no plans to slow down and continues to provide investors with endless reasons to pay attention. Netflix not only nails the self-produced content it releases such as Stranger Things, The Crown and The Umbrella Academy, but it also has its subscriber tracking down to a science, by microanalysing viewership to determine what people like, so its executives can mimic the dynamic.

As the purveyor of everything from iPhones, iPads, iPods, music and television streaming and smartwatches, many investors continue to have Apple in their sights. The innovative, consumer electronics giant just launched its latest 5G range of iPhone 12s this month, including a mini version which consumers expect could mark the end of giant phones. This year, Apple also made history when it became the first US company to hit a market capitalisation of over $2 trillion, just two years after it hit the $1 trillion mark, meaning the company has essentially doubled in value in just over 24 months.

Robert Francis

Robert Francis

Moreover, Apple’s 4-for-1 stock split announcement in August provided investors with more access to the giant’s stocks, which were previously considered overvalued and overpriced.

The world’s most popular search engine Google (who happens to also own the second most popular search engine – Youtube), has proven to be so much more than just a search engine. Google is now smart cities, biotech, self-driving cars, artificial intelligence, phones, devices and more.

Regularly accounting for 92 per cent or more of worldwide monthly internet search volume, Google has recently announced the release of its Pixel 5 and the Pixel 4A smartphones. The 5G capabilities of the Pixel 5 and Pixel 4A could be a game-changer and an important upgrade cycle for the company.

Alphabet (which Google is the subsidiary of) is also continuing to make headlines. As Alphabet begins a new decade, it’s in a strong position to continue providing excellent results to its shareholders. Alphabet boasts a flawless balance sheet, with $121 billion in cash. With a balance sheet this powerful, the company can afford to make investments in research and development both to maintain its lead in search and develop new products and services.

Finally, as its founder Jeff Bezos made headlines this year after he became the world’s richest man worth over $200 billion, Amazon has proven that it is the ultimate coronavirus-proof company on the market. Worth over $1.7 trillion, Amazon has thrived during the global pandemic, as online shopping has provided consumers with a rare shining light in a largely grim retail sales environment. Combine this with the millions of employees working from home or remotely, relying on the cloud-computing platforms powered by Amazon, it’s no surprise why the company is so successful.

However, not all FAANG stocks have retail investors hooked. Many believe that the powerhouses are grossly overvalued, and they might be better off paying for more fairly valued stocks, which can provide portfolios with more downside protection and greater growth over the longer term.

During times of volatility, especially as the global pandemic continues to spread around the globe, investors should plan their investments responsibly and adopt a long-term mindset, in order to reap the rewards in the future.


Analysis: Global bond rout puts BOJ’s yield curve control in spotlight



Analysis: Global bond rout puts BOJ's yield curve control in spotlight 2

By Leika Kihara

TOKYO (Reuters) – The Bank of Japan’s success in controlling the shape of the bond market’s yield curve could tempt other central banks to consider deploying similar tactics as they grapple with a rise in borrowing costs that could cripple their economies.

The Japanese central bank has kept bond yields largely pinned inside a narrow range around 0%, since it adopted its yield curve control (YCC) policy in 2016.

The merits of the policy are clear. By shifting to targeting yields, the BOJ could buy fewer bonds than under its massive bond-buying programme many analysts saw as unsustainable.

With a pledge to cap the 10-year Japanese government bond (JGB) yield at zero, the BOJ has kept rises in the benchmark yield at just 17 basis points this year, even as the U.S. Treasury yield spiked 70 points.

“YCC is working quite well. It relieved the BOJ from the burden of having to buy bonds at a set pace,” said former BOJ executive Shigenori Shiratsuka, currently professor at Keio University.

“Major central banks will probably follow in the footsteps of the BOJ,” as keeping rates low would be crucial in helping governments manage the huge cost of combating COVID-19, he said.

Indeed, some central banks are warming to YCC as they hunt for ways to reflate growth with dwindling policy ammunition.

Australia’s central bank adopted YCC in 2020 and defended its three-year yield target with huge bond buying.

The European Central Bank does not conduct explicit YCC but is tying its stimulus more heavily to the yield curve.

ECB board member Fabio Panetta said on Tuesday the recent steepening in the yield curve was “unwelcome and must be resisted,” pointing to the merits of a “firm commitment to steering the euro area yield curve.”

“This has to be as far as any ECB official ever went in terms of YCC commitment,” Pictet Wealth Management strategist Frederik Ducrozet said of Panetta’s comments.


Japan’s nearly five years of experience with YCC has exposed some of its flaws. The BOJ has said it will look into making its tools more “sustainable and effective”, including by addressing the demerits, when it carries out a policy review this month.

Indeed, YCC could be difficult to maintain and may not suit everyone. The Fed has stopped short of introducing a yield cap, despite studying it for years.

BOJ policymakers concede YCC worked in Japan because of the central bank’s huge presence in the bond market and a dearth of expectations that inflation would pick up.

On the rare occasion the 10-year yield deviated from its target, the BOJ stepped up purchases such as through a “special” operation where it offered to buy unlimited amounts at a set price.

This could be a costly operation in a vastly diverse $18 trillion U.S. Treasury market, where controlling yields could be far more challenging than in the $9 trillion JGB market.

“I won’t rule out the chance of the Fed adopting a two-year yield cap, if interest rates continue to rise and destabilise the stock market,” said former BOJ official Nobuyasu Atago, who is now chief economist at Japan’s Ichiyoshi Securities. “But there’s a lot of uncertainty on whether it will work.”

For now, major central banks see no problem with higher inflation. Fed policymakers consider the recent jump in yields as an “appropriate” reaction to hopes for higher growth.

Even if the rise were to be considered too much, the Fed has an interim step short of YCC, such as buying longer-dated bonds.

Being too successful with YCC comes at a cost. Market liquidity dried up as Japan’s 10-year yield mostly hugged a 20-basis-point band around the 0% target since YCC was rolled out.

(Click here for an interactive graphic of Japan’s JGB yields since early 2016:

The BOJ will thus discuss ways to allow 10-year yields to deviate more from its target at the March review, sources have told Reuters.

Allowing yields to rise more would help make YCC more sustainable, as vaccine rollouts could drive up economic growth, inflation and long-term rates in the coming months, analysts say.

But if the BOJ allows rates to fluctuate more widely, it risks undermining the credibility of YCC.

“If the BOJ is being forced to allow yields to move at a wider range around its target, it shows that markets are deciding the shape of the yield curve and that there are limits to the BOJ’s ability to control it,” said former BOJ deputy governor Hirohide Yamaguchi.

“It’s hard to control long-term interest rates within a tight range for a long period of time.”

(Additional reporting by Balazs Koranyi in Frankfurt and Howard Schneider in Washington; Editing by Jacqueline Wong)


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Wall Street slides on tech sell-off, other world stocks flat



Wall Street slides on tech sell-off, other world stocks flat 3

By Suzanne Barlyn

NEW YORK (Reuters) – Wall Street fell on Wednesday as investors sold off technology stocks, while shares from Asia to Europe were flat, while the dollar rose even as U.S. jobs data disappointed investors and virtual currency bitcoin jumped.

The pan-European STOXX 600 index rose 0.05% and MSCI’s gauge of stocks across the globe shed 0.68%.

“We’re seeing a lot of what we’ve seen over the past week or so, that is markets being stymied to some extent by rising interest rates,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.

The Dow Jones Industrial Average fell 119.98 points, or 0.38%, to 31,271.54, the S&P 500 lost 50.51 points, or 1.31%, to 3,819.78 and the Nasdaq Composite dropped 361.04 points, or 2.7%, to 12,997.75.

Equities retreated as benchmark U.S. Treasury yields moved higher after declining for three straight days.

High-flying technology shares sold off as investors pivoted to sectors more likely to benefit as the economy recovers due to fiscal stimulus and vaccinations.

Emerging market stocks rose 1.30%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 1.42% higher, while Japan’s Nikkei rose 0.51%.

The U.S. economy’s modest recovery continued over the first weeks of this year, with businesses optimistic and housing demand “robust,” with slow improvement in the job market, the Federal Reserve reported.

Other data showed U.S. services industry activity unexpectedly slowed in February due to winter storms, while private payrolls increased less than expected as manufacturing and construction jobs declined.

Investors were growing optimistic that U.S. stimulus will soon energize the global economy. The U.S. Senate was set to open debate on President Joe Biden’s $1.9 trillion coronavirus relief package, with Democrats eager to pass it soon.

UK Finance minister Rishi Sunak delivered what he hopes will be a last big spending splurge to get Britain’s economy through the COVID-19 crisis, and announced a corporate tax hike starting in 2023 to bolster public finances.

Longer-term U.S. Treasury yields rose as investors looked toward comments from Federal Reserve Chair Jerome Powell on Thursday for signs the central bank was set to acknowledge the risk of a rapid rise in rates.

The benchmark 10-year note was poised to snap a three-day streak of declines following a jump to a one-year high of 1.614 percent last week, with many Fed officials having downplayed the rise in recent days.

Benchmark 10-year notes last fell 15/32 in price to yield 1.467%, from 1.415% late on Wednesday.

Euro zone government bond yields rose again on doubts about whether the bloc’s central bank will step in to curb the recent sharp increase, while data reflected optimism about economic recovery.

Although yields have dipped from their highs, pressure remains, with Germany’s 10-year Bund yield, the benchmark for the region, rising 5 basis points to -0.29%. It remained far below its Feb. 26 spike of -0.203%.

The dollar gained as investors priced for strong U.S. growth relative to other regions, while the safe-haven Japanese yen continued to weaken to a seven-month low.

The dollar index rose 0.157%, with the euro down 0.21% to $1.2064.

Bitcoin hit $52,652, the highest in a week. It was last up 4.1% at $50,533.

Spot gold dropped 1.3% to $1,715.40 an ounce. U.S. gold futures fell 0.85% to $1,715.30 an ounce.

Oil prices rose, boosted by expectations that OPEC+ producers might decide against increasing output.

U.S. crude recently rose 2.44% to $61.21 per barrel and Brent was at $64.04, up 2.14% on the day.

(Reporting by Suzanne Barlyn; Editing by David Gregorio)


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European stocks muted as rise in yields, inflation bets curb initial gains



European stocks muted as rise in yields, inflation bets curb initial gains 4

By Sruthi Shankar and Ambar Warrick

(Reuters) – European stocks ended flat on Wednesday, with gains in economy-sensitive sectors offset by a rise in bond yields as investors raised their inflation expectations for the year.

Consumer-oriented automobile and travel stocks were the day’s best performers, while British stocks rose after finance minister Rishi Sunak extended emergency programmes to support the economy through the COVID-19 pandemic.

A strong outlook from Stellantis boosted the automobile sector.

The pan-European STOXX 600 index ended largely unchanged after opening stronger, with utility stocks leading losses in the euro zone.

Utilities are often considered as proxies for bonds, and are sold off when debt offers relatively higher yields.

European bond yields rose on Wednesday, while a market gauge of long-term euro zone inflation expectations rose to its highest level since May 2019. [GVD/EUR]

Healthcare and technology shares also suffered big losses as focus turned away from defensive stocks and towards sectors more likely to benefit from an economic recovery.

“Healthcare has performed well during difficult periods in the market. Now that conditions have improved, people are considering general recovery areas which are benefiting from a recovery economy,” said Chris Bailey, European strategist at Raymond James.

Hopes of COVID-19 vaccines spurring a return to economic normality drove optimism about euro zone business activity to a three-year high in an IHS Markit survey.

British bank stocks rose after Sunak said the UK would review a tax surcharge on bank profits to make them more competitive against foreign rivals.

But Sunak also announced future tax hikes to offset the large hole left in public finances by current spending.

German stocks ended about 0.3% higher as investors anticipated a gradual easing of coronavirus curbs as a sluggish vaccination campaign accelerates. Falls in major technology stocks helped to drag them down from a record high hit earlier in the session, however.

Automobile supplier Continental jumped 5.4% after UBS upgraded its rating to “buy”, citing “attractive” value creation from the company’s plans to spin off its powertrain unit Vitesco.

Swiss logistics group Kuehne & Nagel International rose 7.1% to the top of the STOXX 600 as it notched up record full-year operating profit.

Shares in UK insurer Hiscox Ltd tumbled 11.8% to the bottom of the STOXX 600 as the firm swung to a huge loss for 2020 and continued to withhold a dividend.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Subhranshu Sahu and Anil D’Silva)


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