Did FAANG Stocks lead the US Stock Market Drop?

Blog post
Jun Wang, Andrei Morozov
October 15, 2018
On Oct. 10 and 11, the U.S. stock market plummeted 3.3% and 2%, respectively, as measured by the MSCI USA Investable Markets Index (IMI). Fears of a slowdown in global economic growth, potentially stemming from global trade disputes and rising interest rates, were among the reasons cited for this steep drop.1 As FAANG stocks — those issued by Facebook, Apple, Amazon, Netflix and Google — have dominated U.S. market performance for the past few years, we examined how they performed during the recent market turmoil. A factor-based analysis finds an equal-weighted simulated portfolio of these stocks performed very differently on the two days under examination. We used the MSCI USA Total Market Model to better understand the movements of these five stocks during this period of market volatility. On Oct. 10, the simulated portfolio performed worse than the overall market, plunging 5.6% compared to the market's 3.3% decline. The following exhibit provides greater insight: Out of the portfolio's total return of -5.6%, the market and beta factors contributed -4.3%, while other style factors contributed -1% (with momentum accounting for about one-quarter of that figure), industries contributed -0.6%, and specific return (the part of the stock return unexplained by factors) was 0.3%. For the individual stocks, the factors accounted for the bulk of the returns, and the stock-specific returns accounted for a relatively small fraction. This means that most of the price movement in these stocks was caused by market-wide effects, not by the pressure on the individual names.
Oct. 10: Factors contributed nearly all of the simulated returns
Unnamed: 0
Return
Market
Beta
Momentum
Other Styles
Industries
All Factors
Specific
Unnamed: 0

Google

Return

-4.63%

Market

-3.28%

Beta

-1.27%

Momentum

0.01%

Other Styles

-0.39%

Industries

-0.67%

All Factors

-5.59%

Specific

0.95%

Unnamed: 0

Netflix

Return

-8.38%

Market

-3.28%

Beta

-1.55%

Momentum

-0.61%

Other Styles

-0.96%

Industries

-0.70%

All Factors

-7.09%

Specific

-1.30%

Unnamed: 0

Apple

Return

-4.63%

Market

-3.28%

Beta

-0.40%

Momentum

-0.41%

Other Styles

-0.59%

Industries

-0.05%

All Factors

-4.73%

Specific

0.09%

Unnamed: 0

Amazon

Return

-6.15%

Market

-3.28%

Beta

-0.91%

Momentum

-0.68%

Other Styles

-0.81%

Industries

-0.87%

All Factors

-6.55%

Specific

0.39%

Unnamed: 0

Facebook

Return

-4.13%

Market

-3.28%

Beta

-0.99%

Momentum

0.38%

Other Styles

-0.75%

Industries

-0.67%

All Factors

-5.31%

Specific

1.18%

Unnamed: 0

Simulated portfolio

Return

-5.59%

Market

-3.28%

Beta

-1.02%

Momentum

-0.26%

Other Styles

-0.70%

Industries

-0.59%

All Factors

-5.86%

Specific

0.26%

While factors dominated performance for the five-stock equal-weighted portfolio on Oct. 10, we found a markedly different result for the following day. While the U.S. stock market continued falling on Oct. 11, dropping another 2%, FAANG stocks lost only 0.65%. Three out of five stocks generated positive specific returns above 1%. Overall, the portion of the return unexplained by factors was 0.7%.
Oct. 11: Specific return played a bigger — and positive — role
Unnamed: 0
Return
Market
Beta
Momentum
Other Styles
Industries
All Factors
Specific
Unnamed: 0

Google

Return

-0.13%

Market

-2.07%

Beta

-0.29%

Momentum

-0.01%

Other Styles

0.47%

Industries

0.68%

All Factors

-1.21%

Specific

1.07%

Unnamed: 0

Netflix

Return

-1.47%

Market

-2.07%

Beta

-0.39%

Momentum

0.12%

Other Styles

0.69%

Industries

0.29%

All Factors

-1.35%

Specific

-0.12%

Unnamed: 0

Apple

Return

-0.88%

Market

-2.07%

Beta

-0.10%

Momentum

0.07%

Other Styles

-0.18%

Industries

0.16%

All Factors

-2.13%

Specific

1.24%

Unnamed: 0

Amazon

Return

-2.04%

Market

-2.07%

Beta

-0.23%

Momentum

0.12%

Other Styles

0.36%

Industries

0.81%

All Factors

-1.01%

Specific

-1.05%

Unnamed: 0

Facebook

Return

1.30%

Market

-2.07%

Beta

-0.23%

Momentum

-0.08%

Other Styles

0.63%

Industries

0.68%

All Factors

-1.05%

Specific

2.35%

Unnamed: 0

Simulated portfolio

Return

-0.65%

Market

-2.07%

Beta

-0.25%

Momentum

0.04%

Other Styles

0.40%

Industries

0.53%

All Factors

-1.35%

Specific

0.70%

Over both days of stock market declines, specific return for these stocks was positive, totaling almost 1%. This positive performance counters the notion of this market downturn being led by FAANG stocks and shows market support of these popular names even in the darker days. In the periods of high market volatility, factors often are responsible for the most of stock returns. Understanding how factors contribute to performance of both diversified portfolios and individual stocks may help investors uncover insights into market events as they develop.

1 For example, see Driebush, C. "Quickening retreat from tech sinks market." Wall Street Journal, Oct. 10, 2018.
Further reading:
How can active managers add factors to the portfolio? All FAANGS are not created equal Do factors stand up to FAANG? MSCI Factor Investing
Jun Wang
Jun Wang
Vice President, MSCI Research
Andrei Morozov
Andrei Morozov
Executive Director, Equity Factor Modeling Research

Subscribe today
to have insights delivered to your inbox.

The content of this page is for informational purposes only and is intended for institutional professionals with the analytical resources and tools necessary to interpret any performance information. Nothing herein is intended to recommend any product, tool or service. For all references to laws, rules or regulations, please note that the information is provided “as is” and does not constitute legal advice or any binding interpretation. Any approach to comply with regulatory or policy initiatives should be discussed with your own legal counsel and/or the relevant competent authority, as needed.