Despite ongoing concerns about COVID-19, inflation, supply chain disruptions and rising interest rates, the Nasdaq is still trading more than 110% above its March 2020 lows.
Any tech investor during the past two years knows just how much of the recent growth in the tech sector is attributed to the five growth superstars of the Nasdaq: Meta Platforms Inc (NASDAQ:FB), Apple Inc (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), Netflix Inc (NASDAQ:NFLX) and Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL).
These so-called FAANG stocks continue to deliver year-after-year of incredible growth numbers, even as their market caps swell to some of the largest in market history. While other companies were crushed by the pandemic, these FAANG stocks thrived in an environment of social distancing and remote working.
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Tech Leadership Stumbles: Investors have done extremely well overall in the past year, but some stocks have certainly performed better than others. The SPDR S&P 500 ETF Trust (NYSE:SPY) total return in the past 12 months is 21%, but the total return of the Fidelity NASDAQ Composite Index ETF (NASDAQ:ONEQ) in that stretch is just 6.5%.
The Nasdaq kicked off 2020 trading at around 9,000. The index ultimately peaked at 9,838 prior to the 2020 COVID-19 pandemic sell-off in March, which dropped the Nasdaq all the way back down to 6,631.
The sell-off was short-lived and the Nasdaq hit the 10,000 mark for the first time during the summer of 2020.
Tech stocks were hit by a period of volatility in September 2020. After peaking at 12,074.06, the index pulled back by more than 12% to 10,519.49 before breaking out to new highs in November 2020.
The index hit 13,000 in January 2021 and 14,000 in February before hitting another brief hiccup. The unwinding of the meme stock trading frenzy and a pullback in cryptocurrency prices triggered a flight out of risk assets, which weighed on the Nasdaq. The index dropped back to 12,397.05 in March 2021 and didn't break out to new highs until June.
The Nasdaq reached 15,000 in August 2021 and 16,000 in November, hitting its all-time high of 16,212.23. From that point forward, concerns over inflation and the potential for aggressive Federal Reserve interest rate hikes have weighed on Nasdaq tech stocks. Rising interest rates disproportionately impact the valuations of growth stocks because a rising cost of capital negatively impacts the value of future cash flows.
In January 2022, the Nasdaq dropped into correction territory, pulling back as low as 13,094.65 before bouncing back to around 14,056.
Patience Pays Off: At this point, the FAANG stocks have grown into complete tech sector juggernauts. But some of them have made better investments than others over the past year.
Here’s a breakdown of how much buying $1,000 in each stock on Jan. 31, 2021, would be worth today, assuming reinvested dividends:
- Netflix: $722
- Amazon: $898
- Meta: $1,168
- Apple: $1,299
- Alphabet: $1,460
Overall, a $5,000 investment in these five stocks split evenly a year ago would be worth $5,547 today, a 10.9% total return over a 12-month period.
Benzinga’s Take: Among the FAANG group, only Apple and Alphabet have outpaced the 21% total return of the S&P 500 over the past year. Not only has the group underperformed in the past 12 months, but investors have also endured painful losses in Netflix and Amazon.
Photo: Bernd Hildebrandt from Pixabay
