With the “FANG” trade getting long in the tooth, so to speak, Wall Street analysts are now scrambling to formulate new acronyms to accommodate the most robust names in Big Tech today.
FAANG, FAAA, FAAMG and now FANTASY have been brought forward adding companies like Microsoft, Tesla and Nvidia to the original FANG Fab-Four of Facebook, Amazon, Netflix and Google.
As market warning signs go, they don’t get better than this. Widely accepted market acronyms don’t evolve gracefully. They pop. Remember the BRICS (Brazil, Russia, India and China) and NINJA loans – (No income, no job)?
What most investors miss is that universally understood and enthusiastically embraced acronyms reflect peak sentiment. They are a market narrative boiled down to its most simplistic and easiest to grasp form. Repeated over and over and appearing everywhere, they are cognitive ease at its best. Like pieces of sea glass, all of the rough edges have been worn away over time and everyone can hold them.
In my book “Moods and Markets” I noted that “Big Truths” – like the simplistic market narrative “Homes are a great investment” – always materialize at peaks in sentiment. At the top, everyone believes a very simple story.
Market acronyms, though, are that simple story on steroids. Who needs a full five word phrase when four simple letters will do? Acronyms are a special breed of narrative found only at an extreme in mood.
What is so interesting at this particular juncture is that we don’t have just one acronym in full froth today, but two: FANG and VIX – the latter being short-hand for the stock market’s volatility index. Investors, including now many retail investors, have been betting that the VIX is going to continue to fall – expecting that market fluctuations are going to get smaller and smaller over time.
To these eyes, both acronyms appear to be peaking simultaneously, suggesting a very turbulent time ahead; not only for Big Tech, but for the markets more broadly. Again, acronyms pop, they don’t evolve. With two bursting at once, the sound may be deafening.
To be clear, nothing exceeds like excess and even the most simplistic market narrative can go on longer than you ever imagined. At the same time, the current scrambling for a successor to FANG suggests that time is quickly running out.
This is a Hedgeye Guest Contributor note written by Peter Atwater, founder and president of Financial Insyghts. He previously ran JPMorgan’s asset-backed securities business. An adjunct professor in economics at the College of William & Mary, he is also the author of the book Moods and Markets which details how investors can improve returns by using non-market indicators of confidence. This piece does not necessarily reflect the opinion of Hedgeye.