Faang’s Dominance Too Hard to Overcome as 10% Correction Looms

Bulls betting that a revival of the reopening trade would keep the U.S. stock market afloat had to face a hard fact on Monday: The technology giants are hard to ignore.

Yes, reopening helped energy shares rally as oil prices jumped to the highest since 2014. And yes, Covid treatment outlooks brightened after Israeli biotech company RedHill Biopharma Ltd. followed Merck & Co. in announcing promising data on an oral therapy.

But none of that seemed to matter once the tech megacaps buckled Monday, as a monthlong bruising quickly headed toward a 10% correction. The S&P 500 erased Friday’s bounce, sinking 1.3% to its lowest level since July and retreating below its 100-day average, a key support for the bull market that began in March 2020.

The revival of the reopening trade has done little to loosen the grip of Facebook Inc., Amazon.com Inc., Apple Inc., Microsoft Corp. and Alphabet Inc., a cohort known as Faang. While the bloc’s 22% representation in the benchmark is down from last year, its influence on the S&P 500 remains greater than any comparable group of stocks since at least 1980, according to data compiled by Goldman Sachs Group Inc. and Bloomberg.

Here’s just one example of how much tech drives the markets: If you exclude the Faang losses on Monday, the S&P 500’s drop would have been almost halved.

“The dominance of these technology companies is a double-edged sword,” said Adam Phillips, managing director of portfolio strategy at EP Wealth Advisors. “Throughout the pandemic, these stocks did most of the heavy lifting, but this group could become a drag on the market as leadership changes.”