The FAANGs (Facebook, Amazon, Apple, Netflix and Google in their original incarnation) have been emblematic of the post-financial crisis bull market. 

Throughout the 2010s, and even right through the pandemic, they represented the “new economy” of tech disruption and metadata – their share prices soaring and humbling all before them.

Peaking in late 2021, the market capitalisation of these five companies once reached almost $11.5-trillion, or roughly a third of the entire US market, according to Bloomberg. They were unavoidable and omnipresent, both for consumers and for investors.

But their fortunes have since soured. 

Last week, Netflix had well-received results after a few surprise hits such as Stranger Things 4 and Dahmer, but as for the rest of the tech leviathans, it was a bloodbath. 

Disappointing results from Alphabet (the owner of Google) and Microsoft were the first to arrive, with the market wiping more than $200-billion off the valuations of America’s second and third most valuable companies. 

Clearly, the heady growth of the pandemic days are long over, with Google showing revenue growth of a deeply unconvincing 6%, the slowest since 2013. 

Other than its cloud division, Microsoft faced similar headwinds with the strong dollar and lousy sales.

But the real massacre was yet to come. 

On 27 October, it was the turn of Meta, the parent company of Facebook, Instagram and WhatsApp. 

Mark Zuckerberg reported that, with spending on his “metaverse” consuming billions, the company is now generating zero free cash flow. Its margins have collapsed from 36% to 20% and, hit hard by Apple’s new privacy regulations, its advertising revenue growth has stalled. 

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The fall from grace for Meta has been brutal. 

Last week, the stock was down 25%, bringing the year-to-date decline up to 70%. It has now underperformed the market since listing in 2012, currently trading on nine times earnings versus the market average of 18. 

Amazon was next, and was hardly any better. 

It warned consumer spending was in “uncharted waters” as it issued revenue forecasts well below Wall Street expectations, sending its shares down 10% on Friday and deepening the sense of gloom. 

Amazon Web Services, the cloud division which has long since been the profit driver of the company, showed slower revenue growth and lower margins. 

Paradoxically, the despondency in big tech has happened while there are nascent signs of recovery in the broader market, as investors bet that bond yields are starting to fall and that central bankers may be nearing the end of at least the most vicious part of the rate hiking cycle. 

Even despite the selloffs in tech, the US market was up almost 4% last week.

What seems to be happening is a pivot from the Big Tech “new economy” hype back to the “old economy”; defensive companies which are value-based and are now performing better due to their stable earning streams. 

Higher interest rates and discount rates self-evidently hurt hardest when cash flows are unpredictable and far off into the future. As the Fed forges on with its most aggressive tightening monetary policy in decades, the present value of far-off profits is much lower. 

For those “old economy” companies generating earnings in cash today, and with a clear view of such flows over the long term, investors can be more sanguine.

Ironically, therefore, this could be an opportune moment for investors to start moving back into the equity market. 

If the US is to avoid a prolonged recession – admittedly a big if – stocks are finally starting to look reasonable value. Sentiment on Wall Street is absolutely dire; it is hard to find anyone optimistic. 

As veteran investor Jeremy Grantham is fond of saying, the moment stocks start going up is not when the sun rises, but when the night goes from pitch black to just slightly less pitch black. 

What with European war, China-US tensions, global inflation and a possible recession dominating the headlines, things are pretty dark right now. 

Could last week’s tech selloffs herald the moment of pre-bull market capitulation? You would have to be a brave person to bet on it, but it certainly is not impossible. BM/DM