Let's go ahead and call 2022 the year the FANG trade finally fizzled out. It was already on its last legs, to be sure; the stocks have changed so much the moniker doesn't even make sense anymore. "F" is now Meta, "G" became Alphabet, "A" was Amazon but everyone often confused it for Apple, and Netflix had a horrific 2022.
In fact, their crash from the highs--which was summer 2021 for Amazon, fall of 2021 for the rest of them--has been so pronounced that on a five-year basis these stock returns look positively pedestrian. Facebook, err, Meta, is actually down 30% in that period of time. Amazon and Netflix are up about 50%, or around 10% a year, and Google--sorry, Alphabet--is the outperformer, up 69% in total.
The reset has been so profound that Meta has now been displaced by UnitedHealth as the sixth most valuable company in the S&P 500, while Alphabet and Amazon swapped spots but are still #3 and #4 respectively as of year-end. Who else has made major inroads after 2022? The energy companies, absolutely. Exxon has vaulted from #28 to #8, and Chevron jumped from 38th to 16th place.
Energy, healthcare, and defense were three areas where you still could have made money last year despite the market's 20% overall drop. Merck, a Dow component, was up more than 40%! On a five-year basis it has more than doubled. Healthcare has been so buzzy that one analyst, Jared Holz of Oppenheimer, jokes that "BANG," or Bristol Meyers/Amgen/NBIX/Gilead, is the new FANG now.
There are now a number of healthcare names in the top 20 of biggest S&P 500 companies. Right after UnitedHealth (up 135% over five years) is Johnson & Johnson (+28%), while Eli Lilly (+332%) is in 13th place, and Procter & Gamble (+65%)--a consumer staples company with a big healthcare portfolio--is fifteenth. Pfizer (+47%) rounds things out in the 20th spot, even though the Covid vaccine maker actually dropped 10% last year. Hat tip to The Wall Street Journal for the rankings, by the way.
And credit to Richard Bernstein, who called this kind of market posture several times on our shows last year. He said the market favored "potato chips over computer chips," and was overweight traditionally defensive sectors like consumer staples versus cyclicals. (The semiconductor ETF, the SMH, finished the year down more than 35%, whereas staples almost broke even.)
And the defense sector, which rarely gets much mention these days, actually managed to post a roughly 7% overall gain. It's had a tougher time lately, up only 19% in the past five years, but Mark Avallone of Potomac Wealth Advisors told us the other day he still favors it here; why? Because the Ukraine war has actually managed to unite Congress for once around higher defense spending. "Both parties in Congress are supportive...and [the war] in Ukraine is increasing demand for missile defense and other weaponry," he noted.
Healthcare, energy, defense...these are huge swaths of the economy that have still managed to post decent returns in this bear market. Or, as our friend Jim Cramer likes to say, "there's always a bull market somewhere."
See you at 1 p.m!
Kelly