This post was a request to my Indices and Inflation post.
It compares how the FANG stocks fair compared to inflation. Included stocks are: GOOG, MSFT, AAPL, FB, NFLX, AMZN and TSLA (Not sure if TSLA is truly FANG but I am sure people want to know how it fairs). I have also added QQQ as a baseline comparable. QQQ's three biggest holdings in order from highest to lowest are AAPL (11.27%), MSFT (10.11%) and AMZN (7.79%).
The stocks were compared via Pearson Correlation to the US' monthly inflation rate. The statistical results are summarized in the chart below. As an overview, a negative value means that an inverse relationship exists, as one increases, the other decreases. A positive result means that a synergistic relationship exists, one increases, the other increases. The extent to the relationship is rated on a scale from 0 to 1. 0 being there is no relationship at all and 1 being an almost identical relationship. This is demonstrated by the R value. In statistics, depending on the situation under study, we like to see at least a 0.350 to 0.500 with qualitative phenomenon to determine it significant. I will use 0.350 as my benchmark for significance.
Results:
- Generally, it appears as the FANG stocks are neutral to inflation. This means that their growth likely will remain fairly consistent despite an inflationary climate; however,
TSLA : is exempt from this, with an R value of positive 0.583. This indicates a significant positive relationship which would imply that TSLA would increase as inflation increases. TSLA hit the market in 2010. It has seen its fair share of inflation, but it has not experienced inflation to the extent that MSFT or AAPL has. Which brings me to:
MSFT: is the most neutral stock to inflation and has the most reliable results. MSFT's IPO was in the 80s and it hit the market in 1986, a time of super high inflation. MSFT has lived through many instances of extreme inflation and thus, I trust the results here.
AAPL hit the market before MSFT, in 1980. It has an inverse relationship with inflation. Which means, as inflation increases, AAPL stock decreases. It is interesting to see that this is not shared with MSFT. As far as inflation is concerned, MSFT seems to be more of a stable stock than AAPL.
FB I would interpret these results with caution as FB hit the market in 2012 and has not seen the type of inflation as the other stocks. IT also completely bypassed the tech bubble burst and the 2007/2008 crisis.
Everything else is fairly neutral/not significant and I would deem them to be inflation neutral with no significant relationship existing between inflation and growth.
Why is this a thing for tech stocks? I am not sure, leave your comments with your thoughts on this! I would be interested in hearing them.
Thanks for reading!
It compares how the FANG stocks fair compared to inflation. Included stocks are: GOOG, MSFT, AAPL, FB, NFLX, AMZN and TSLA (Not sure if TSLA is truly FANG but I am sure people want to know how it fairs). I have also added QQQ as a baseline comparable. QQQ's three biggest holdings in order from highest to lowest are AAPL (11.27%), MSFT (10.11%) and AMZN (7.79%).
The stocks were compared via Pearson Correlation to the US' monthly inflation rate. The statistical results are summarized in the chart below. As an overview, a negative value means that an inverse relationship exists, as one increases, the other decreases. A positive result means that a synergistic relationship exists, one increases, the other increases. The extent to the relationship is rated on a scale from 0 to 1. 0 being there is no relationship at all and 1 being an almost identical relationship. This is demonstrated by the R value. In statistics, depending on the situation under study, we like to see at least a 0.350 to 0.500 with qualitative phenomenon to determine it significant. I will use 0.350 as my benchmark for significance.
Results:
- Generally, it appears as the FANG stocks are neutral to inflation. This means that their growth likely will remain fairly consistent despite an inflationary climate; however,
TSLA : is exempt from this, with an R value of positive 0.583. This indicates a significant positive relationship which would imply that TSLA would increase as inflation increases. TSLA hit the market in 2010. It has seen its fair share of inflation, but it has not experienced inflation to the extent that MSFT or AAPL has. Which brings me to:
MSFT: is the most neutral stock to inflation and has the most reliable results. MSFT's IPO was in the 80s and it hit the market in 1986, a time of super high inflation. MSFT has lived through many instances of extreme inflation and thus, I trust the results here.
AAPL hit the market before MSFT, in 1980. It has an inverse relationship with inflation. Which means, as inflation increases, AAPL stock decreases. It is interesting to see that this is not shared with MSFT. As far as inflation is concerned, MSFT seems to be more of a stable stock than AAPL.
FB I would interpret these results with caution as FB hit the market in 2012 and has not seen the type of inflation as the other stocks. IT also completely bypassed the tech bubble burst and the 2007/2008 crisis.
Everything else is fairly neutral/not significant and I would deem them to be inflation neutral with no significant relationship existing between inflation and growth.
Why is this a thing for tech stocks? I am not sure, leave your comments with your thoughts on this! I would be interested in hearing them.
Thanks for reading!
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