In this higher-growth market, investors are looking beyond FAANG

  • Four of the five FAANG names are in correction territory, with Facebook sliding the most at 31 percent from its 52-week high. Apple is the relative winner of this group, down only 7 percent from its 52-week high.
  • We have been transitioning from a decade of a low growth, low yield environment, one in which it paid to buy technology stocks because tech was one of the only sectors with significant growth.
  • The world is changing. Value stocks are cheaper and have mostly lagged the market. But if you look at the current leaders, they all have a defensive, value-oriented tilt.
FANG (Facebook, Amazon, Netflix and Google) apps on a smartphone.
Adam Jeffery | CNBC
FANG (Facebook, Amazon, Netflix and Google) apps on a smartphone.

Tech stocks are getting slammed, but other parts of the market are holding up much better.

The Nasdaq is having its worst month since January 2016. But while Wednesday's drop was large, for much of the tech sector, this was the culmination of a months-long sell-off.

FAANG stocks, for example, hit their highs as a group in June. Four of the five FAANG names are in correction territory, with Facebook sliding the most at 31 percent from its 52-week high. Apple is the relative winner of this group, down only 7 percent from its 52-week high.

FAANG in correction

(from 52-week highs)

Facebook: down 31 percent

Netflix: down 23 percent

Google parent Alphabet: down 15 percent

Amazon: down 14 percent

Apple: down 7 percent

Source: CNBC

Semiconductors are another example. They hit their highs in March. Big names like Lam Research, Micron, Advanced Micro Devices and even Intel are 20 percent or more off their 52-week highs.

Chips in bear market

(from 52-week highs)

Lam Research: down 40 percent

Micron: down 36 percent

AMD: down 27 percent

Intel: down 22 percent

Source: CNBC

But some big software companies held up relatively well until a few weeks ago, and then they, too, turned south. Salesforce, Adobe and Oracle are more than 10 percent off their highs, while Microsoft is down only 8 percent.

We have been transitioning from a decade of a low growth, low yield environment, one in which it paid to buy technology stocks because tech was one of the only sectors with significant growth. Now, we are moving into a higher growth, higher yield world, in which paying any price for growth may not be as attractive as it used to be. Now, value stocks may be more attractive than growth, and Treasurys are starting to look more attractive versus stocks.

It's important to keep perspective. Tech is still up 11 percent this year, and Apple, Microsoft and Cisco are all up 20 percent or more this year.

There's a lot being made about this "rolling correction." It's true, it's broader than tech. Some 60 percent of the companies in the S&P 500 are in correction territory, which means they are down 10 percent or more from their 52-week highs. More than 25 percent are in bear market territory, which means they are down 20 percent or more from recent highs.

The world is changing. Value stocks are cheaper and have mostly lagged the market. But if you look at the current leaders, the sectors that are the least off their 52-week highs all have a defensive, value-oriented tilt.

Market leaders

(from 52-week highs)

Health Care: down 3 percent

Utilities: down 4 percent

Energy: down 4 percent

Real Estate: down 6 percent

Cons. staples: down 9 percent

Source: CNBC

What's this all mean for earnings season, whose unofficial start is Friday with J. P. Morgan? It makes it a lot more complicated. Six months ago we were dealing with tax cuts and a rapidly expanding economy, and not much else. We still have a strong economy and the tax cuts, but the picture is much more complicated. We are dealing with higher interest rates, higher raw material costs, higher wages, weaker foreign currencies, tariffs and a potentially weaker Chinese economy.

That's a lot of moving parts for traders to digest.