Cracks in these former leaders predict widespread drop, strategist says

This month may not be the time to buy tech.

The once popular FANG stocks (Facebook, Amazon, Netflix and Alphabet), which largely flourished in 2015, have fallen a respective 4.6, 2.5, 12.8 and 7 percent in June.

But investors' concerns this month over the Federal Reserve and a postponed interest rate hike, along with the Brexit, have factored into moving out of momentum stocks and more toward defensive names.

Erin Gibbs, equity chief investment officer at S&P Investment Advisory Services, says investors seem to be engaging in a "risk-off" pattern of trading, flocking to less dicey stocks, notably consumer staples, energy, telecom and utilities.

"And then on top of it, when you look at the guys that have actually been holding us back and hurting the index this month, it's info tech and consumer discretionary that have actually been negative this month," Gibbs told CNBC's "Trading Nation" on Thursday. "So we clearly see, within the sectors, defensive plays."

Downturns in FANG stocks could also indicate a larger trend of risk in the market.

Lawrence McDonald, head of global macro strategy at ACG Analytics, says FANG stocks falling as "leaders" in the market typically comes before a more widespread drop.

"As risk is approaching us, people don't want to pay up for extreme valuation, so there's really nosebleed-level valuation. Facebook's trading nearly 18 times, for example, Twitter is trading four and a half to five times, so just as the great bull markets get tired, people don't want to pay up for risk," said McDonald on "Trading Nation," referring to the companies' valuations.

"I think we're going to be trading in a sideways pattern," added Gibbs, citing tight valuations overall in U.S. markets, "so I don't see it as a buying opportunity just yet."


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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