More to the market than FAANG (and Tesla)
Netflix and Tesla sank the Nasdaq Thursday. But the Dow is popping and the S&P 500 is holding up better as well. Thank strong earnings from J&J and old school tech IBM.
Tech stocks took a tumble Thursday after Netflix and Tesla failed to live up to the considerable hype with their earnings reports. (It’s going to be hard for Tesla shares to surge 10 times from current levels as Elon Musk has proclaimed if he keeps making overly lofty promises.)
But even though the FAANG + TSLA weakness pushed the Nasdaq lower, the Dow was solidly in green and the S&P 500 was holding fairly steady. Why? The stock market is bigger than just a handful of hot companies.
Dow component Johnson & Johnson surged 6% after the healthcare giant reported earnings that topped forecasts. IBM, also in the Dow, was up 3% after also posting earnings that were ahead of expectations.
It just goes to show that owning a more diverse group of companies is a sounder strategy for investors than piling into a small number of firms that are all, to some extent, variations on the same theme.
J&J may not have a compelling AI strategy for example. But flesh and blood human beings will still need prescription drugs and medical devices to manage their health. And IBM may be an older tech company that investors sometimes ignore. But Big Blue is not the same boring IBM that Wall Street snubbed in favor of the FAANGs. IBM has a thriving cloud business that is helping fuel profits.
But look at the top gainers in the Dow and S&P 500 today and you’ll see a broader trend. Other sectors can help pick up the slack even when hot momentum tech darlings fade. In addition to J&J and IBM, Dow winners included financial giants Goldman Sachs and JPMorgan Chase as well as J&J healthcare rivals Amgen and Merck. Megacap stocks Coke and Pepsi as well as Warren Buffett’s Berkshire Hathaway also helped keep the S&P 500 from falling as much as the Nasdaq.
So if a long-term investor is looking to build wealth, diversification is key. Don’t fall victim to market hype and Wall Street flavors of the month and put all your proverbial eggs into one tech basket.