The valuations of the FAANG stocks are beginning to look ‘egregious’, according to Amundi, as the stocks pull the US market higher.
In a note, Kenneth Taubes, chief investment officer for US investment management, said the valuations of Facebook, Amazon, Apple, Netflix and Google were looking expensive.
Shares in these stocks have risen strongly since the start of the year – Amazon, Apple and Netflix were all up more than 50% – and were largely responsible for the positive returns of the S&P 500 despite the pandemic. However, there had been a downturn in September with Facebook, Apple and Google all reporting double-digit losses during the month.
“Although equity risk premiums are still supportive of broader markets, relative valuations and momentum for the big-five tech stocks will start to seem egregious, as it has happened since early September.
“We are cautious on deep value names and high-growth areas particularly the big five mega-caps and high momentum stocks due to the diversification principle and their expensive valuations.”
He said Amundi favoured industrials over financials or energy stocks as they were less sensitive to the low interest rate cycle and consumer staples and utilities over real estate as real estate was likely to be challenged by a weaker economy.
The company also warned the possible impact of the US election on technology and other US mega-cap names.
“The recent correction reminded investors about the US election risk and the still prevailing risks of a virus resurgence. Investors could focus on the leadership rotation towards cyclical and high-quality stocks,” he said.
