Jefferies in the US: During Rate Hike Period, Hold 'MANG' Stocks Instead of 'FAANG'

Advice on Picking Winners Among Tech Stocks Based on Performance and Capital Soundness
US Fed Expected to Hike Rates Sharply... "Bond Investment Might Be Better"

[Image source=AP Yonhap News]

[Asia Economy reporters Hyunwoo Lee and Hyunjung Kim] Jefferies, a U.S. investment bank, advised moving away from investing in the so-called basic rule of U.S. stock investment, the ‘FAANG (Meta Platforms (Facebook)·Apple·Amazon·Netflix·Google)’ stocks. With the aggressive interest rate hike period by the U.S. Federal Reserve (Fed) approaching, it pointed out the need for careful selection of large tech stocks based on their earnings and financial condition.

According to MarketWatch on the 3rd (local time), Sean Davy, Jefferies’ global equity strategist, stated in a report that day, "Instead of the previously leading FAANG stocks, we recommend investing in the MANG (Microsoft·Apple·Nvidia·Google) group of stocks." He advised excluding Meta Platforms, Netflix, and Amazon, which have raised concerns over poor earnings and deteriorating profitability among the existing FAANG stocks, and instead including Microsoft and Nvidia, which have reported solid earnings.

Davy explained, "With the Fed expected to raise interest rates rapidly and implement a large-scale tightening plan, tech stocks will take a significant hit," adding, "Considering balance sheet soundness and free cash flow yield, MANG stocks are preferred over FAANG stocks in the current situation." He further pointed out, "As the economy slows enough to the extent that investors are buying 10-year Treasury bonds instead of stocks, preference for FAANG stocks will be on hold for some time."

This analysis suggests the need for a conservative investment perspective amid the Fed’s steep interest rate hikes and tightening. Bank of America (BoA) also recently explained in an investor memo that "technology growth stocks, which have been borrowing money at low interest rates to invest and convert it into earnings, will see this cycle broken due to the rate hikes."

In particular, Meta Platforms, Netflix, and Amazon recently reported first-quarter earnings that fell short of market expectations, triggering a flood of disappointment selling and sharp stock price declines. With earnings lower than expected and rapidly rising interest rates, there are concerns about expanding losses due to worsening financial conditions from increased interest burdens.

Conservative investors feeling fear in the current volatile market have also been advised to invest in bonds instead of blue-chip stocks. According to Bloomberg News, JPMorgan Chase stated in an investment memo that day, "Selling stocks and investing in bonds may be a reasonable approach."

In fact, Bloomberg index data showed that as of the previous day’s closing, the average yield on investment-grade corporate bonds was 4.4%, creating a gap of 2.9 percentage points compared to the S&P 500’s average dividend yield of 1.5%. This is the largest yield gap since 2009, right after the global financial crisis.

JPMorgan strategists maintain a positive stance on stocks but explained that some investors are seeking investment strategies to complement their drawbacks. The U.S. Federal Reserve began raising rates in March for the first time since 2018 to control inflation, and U.S. stocks have fallen 12.4% so far this year based on the previous day’s closing price.