Nasdaq is close to the bear market

Investors are finding out that it is not all puppies and unicorns when it comes to momentum plays, in a painful lesson as the Nasdaq tumbles to the edge of a bear market. Investors reaped fat gains through the final stages of the long-running bull market on a set of stocks that many regarded as destined to go ever higher. But the tide has turned and investors can’t seem to run away fast enough. Some are ready to call an end to Wall Street’s most popular trade – the so-called FAANG group of five favorite technology and internet stocks.

More than $80.7 billion poured out of U.S.-based stock funds during the 14 days through Wednesday, according to Lipper. The FAANG components – Facebook (FB.O), Amazon (AMZN.O), Apple (AAPL.O), Netflix (NFLX.O) and Google parent Alphabet (GOOGL.O) – have dropped between 19 and nearly 30 percent since the Nasdaq peaked in late August. The tech-laden index ended on Thursday down 19.5 percent from that Aug. 29 record closing high, just short of confirming a bear market, as it posted its lowest close since October 2017.

Although some Nasdaq components have posted bigger percentage declines, the FAANG members have an outsized influence on indexes because of their large market capitalizations along with their wide ownership. The forward price-to-earnings ratios of the FAANG stocks, except for Apple, are still comfortably above the 15.3 ratio of the S&P 500, but the ratios have been shrinking as their stock prices tumble. Amazon and Netflix have seen the biggest declines in their P/E ratios.