This year, uncertainty regarding the length and duration of the downturn has hung over the market like an anvil, making it difficult for many investors to buy the dip for fear of further declines. When you add in the relentless campaign of raising interest rates launched by the Federal Reserve Bank to combat persistent inflation, it is not surprising that investors and consumers alike have altered their behavior in response to the challenging macroeconomic conditions.The Federal Reserve, on the other hand, altered its tone today, implying that the rate of future interest rate increases will slow down, possibly as early as next month.
Popular FAANG stocks were clearly in rally mode Wednesday afternoon in light of this.By the time the market closed on Wednesday, Netflix (NFLX 8.74%) had gained 9.2%, Alphabet (GOOGL 6.09%) had gained 5.4 percent, honorary member Microsoft (MSFT) had gained 5.6 percent, and Apple (AAPL) and Amazon (AMZN) had each gained 4.5 percent.
The magnitude of these sweeping gains was not even remotely explained
by any company-specific news.This suggests that investors were reacting to the possibility of a better-than-expected economy and a slowdown in interest rate increases.
Therefore, on Wednesday, Jerome Powell, chair of the Federal Reserve, gave a highly anticipated speech at the Brookings Institution in Washington, D.C.In the hope of gaining insight into the central bank’s plans for continuing its ongoing battle with inflation, market participants were on the edge of their seats. Money Road heard precisely exact thing it was expecting to hear, as Powell’s remarks proposed that the Fed would start to slow the speed and tenor of financing cost climbs, starting as soon as December.
Powell stated in his speech, “As we approach the level of restraint that will be sufficient to bring inflation down, it makes sense to moderate the pace of our rate increases.”It’s possible that the December meeting will be the time to slow down the rate of increase.
Although Powell’s email did not provide any specifics, the remarks appeared to suggest that the anticipated interest rate increase in December may be lower than the 0.75 percent rate increases that the Fed has issued in each of the previous four outings. The federal funds rate increased to a range of 3.75 percent to 4% at the beginning of November, its highest rate since early 2008 and the sixth increase thus far this year.
An already fragile economy has been threatened with a recession due to the combination of near-historically high inflation and unrelenting rate increases. The major market indices have suffered as a result of this possibility, with the S&P 500 and Nasdaq Composite falling 16% and 30%, respectively, from their highs at the end of last year.
Powell’s remarks were refreshing because they suggested that the worst might be over.
Now, when we talk about FAANG (or FAANG-M) stocks, we’re referring to some of the most well-liked stocks among investors:
The FAANG stocks—Apple, Amazon, Netflix, Google, which rebranded as Alphabet Microsoft—have been among the market’s best performers over the past ten years, but their performance has been mixed during the downturn. Facebook’s parent company, Meta PlatformsApple’s iPhone sales have remained strong thus far, but the holiday season will soon test customer resolve.Netflix was savaged by its most memorable endorser decrease in over 10 years.The stock recovered after returning to growth, but it is still nearly 50% below its 2021 highs.Decreases in both online business and publicizing spending have thumped Amazon and Letter set, separately, with financial backers standing ready to check whether or when development returns.Microsoft serves consumers and businesses alike, and each of its major markets has suffered.
As investors bought FAANG-M stocks, which have lost between 19% and 49% so far this year, Powell’s remarks gave them the justification they needed to see the big picture today.
Furthermore, although still not cheap in terms of conventional valuation metrics, previously high valuations have become significantly more reasonable over the past year.Apple, on the other hand, has a forward price-to-sales ratio of five, while Microsoft still trades for nearly eight times next year’s sales. Amazon, the most affordable of the group, trades at less than 2 times forward sales, putting it squarely in bargain basement territory, while Alphabet and Netflix both trade for 4 times next year’s sales.I would argue that investors gave these stocks premium valuations during better economic times due to their consistent growth.
Now seems like a good time to add to these market leaders or buy an initial position before they begin to soar, given their history of significantly outperforming the broader markets.