US dollar overtakes FAANG and BAT stocks
Investors have finally taken a break from the so-called FAANG and BAT stocks—the US stocks Facebook (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX), and Google (GOOGL) and China’s Baidu (BIDU), Alibaba (BABA), and Tencent (TCEHY)—after remaining the most crowded trade for ten straight months. According to the Bank of America Merrill Lynch Survey, the US dollar (UUP) replaced the FAANG and BAT stocks as the most crowded trade, cited by 25% of the fund managers surveyed. This is the first time since April 2017 that the US dollar has taken the top rank.
FAANG and BAT stocks were determined to be the most crowded trade by 20% of respondents as compared to 29% last month and 32% a month before that.
Over the past few months, tech stocks have disappointed markets. Apple, Facebook, and Amazon are down in double digits in the last three months. Apple, in particular, has driven the recent sell-off in tech stocks with mounting concerns over iPhone shipments, the US-China trade stand-off, and weak guidance.
The headwinds for tech stocks (QQQ) are increasing with rising costs and increased regulatory scrutiny. The trade war between the US and China is hitting tech stocks especially hard. It’s difficult to say whether these stocks’ high valuations are due to a bubble or are actually supported by future earnings growth, but investors are definitely wary of the bull run.
US dollar and other crowded trades
In contrast, the US dollar (USDU) has been on a fairly upward trajectory in 2018 thus far. YTD, it is up ~4.5% as compared to other major global currencies. The Fed’s interest rate hikes and outlook, trade war concerns, and a better US market (SPY) (QQQ) performance have been the key factors behind the US dollar’s strength.
Recently, the increasing risk-off sentiment in the market is also supporting the dollar. The US dollar index touched 18-month high levels last week.
After the US dollar and FAANG and BAT stocks, the third most crowded trade was bets against emerging markets (EEM).