Kensho Stats

FANG rally boosts market, but maybe not for long

FANG (Facebook, Amazon, Netflix and Google) apps on a smartphone.
Adam Jeffery | CNBC
FANG (Facebook, Amazon, Netflix and Google) apps on a smartphone.

Facebook's strong earnings report added fuel to the "FANG" basket rally this month, but what does that mean for the market going forward?

FANG is an acronym created by CNBC's Jim Cramer for the top-performing technology stocks — Facebook, Amazon.com, Netflix and Alphabet (formerly Google).

The FANG basket is now up more than 5 percent for July compared to the S&P 500's gain of 3 percent.

Using Kensho, a hedge fund analytics tool, we looked at what happens to the market during and after FANG increases of 5 percent or more in a month.

Here is what we found.

Since the start of 2013 a good month for FANG stocks is good news for the market, according to Kensho.

When the FANG basket rises 5 percent or more, the S&P 500 also rallies by 3.4 percent on average.

The tech sector does even better with the Technology Select Sector SPDR Fund (XLK) up 4.2 percent on average.

And that's what we're seeing so far in July.

However, what happens in the month after strong FANG performance months?

The FANG stocks themselves still do OK, but the market does not. The month after those stocks get red-hot, the market trades down 0.2 percent on average during the following month.

Big FANG rallies may be a sign of excessive risk-taking by investors, which may have a mean reversion effect in the month afterward.

The market got a FANG boost in July, but history suggests it may not repeat in August.

Disclosure: NBCUniversal, parent of CNBC, is a minority investor in Kensho.