More often than not, you will hear the acronym “FAANG” when reading or listening to financial news. In fact, FAANG is arguably the most important group of stocks in the entire stock market.
FAANG stands for Facebook, Apple, Amazon, Netflix, and Google (parent company being Alphabet). These five stocks are notorious for their high-growth, high-returns, and technology-focused businesses. Additionally, companies included in FAANG are leaders in innovation, having created revolutionary products and services.
But why are FAANG stocks important? It all comes down to market influence.
The S&P 500 is an index that tracks the performance of just over 500 companies listed in the United States. However, every stock in the index is not weighted equally. The performance of a company with 5% weight influences the index’s performance more than a company with a 0.5% weight.
The five FAANG stocks together comprise around 17% of the S&P 500’s weight, or performance. Take a minute to think about that…5 out of 500 companies controlling 17% of its performance. Now you can see how important FAANG stocks are to the stock market.
If FAANG stocks are performing well, it generally correlates with a strong overall stock market. Conversely, if FAANG stocks aren’t performing well, it generally correlates with a weak overall stock market.
A notable exception to FAANG is Microsoft, the company behind the widely used Word, Excel, and PowerPoint software programs. Microsoft alone comprises around 6% of the S&P 500’s weight.
To recap, FAANG stocks are a collection of five companies that have major influence in the S&P 500 index. So, whenever you’re listening or reading financial news, pay attention to the acronym FAANG, because it may just help you make an even better financial investment!