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(Reuters) - The high-flying "FAANG" stocks are expected to be an overall drag on second quarter earnings growth despite their stock performance bolstering the S&P 500 this year.
The S&P 500 index is expected to see earnings growth of 8.2 percent for the second quarter, but if the five FAANG stocks -- Facebook Inc (FB.O), Amazon.com Inc (AMZN.O), Apple Inc (AAPL.O), Netflix Inc (NFLX.O) and Alphabet Inc (GOOGL.O) -- are excluded, that number rises to 8.4 percent, according to Thomson Reuters data.
"A lot of the growth in the S&P is being driven by the energy sector," said David Aurelio, senior research analyst, Thomson Reuters. "FAANG is contributing but energy has such a high growth rate that its pretty hard to compete with that."
The overall earnings growth for FAANG stocks is in contrast to their stock performance. The market cap of the FAANGs increased by $119.85 billion during the second quarter, or about 22.2 percent of the overall increase in market cap of the S&P 500. Each of the FAANG stocks has significantly outperformed the S&P 500 this year.
The FAANG companies' earnings growth is expected to be 6 percent for the second quarter. But that is not enough to boost growth overall, Aurelio said. Excluding any segment of the market generating less than the 8.2 percent rate for the S&P as a whole will act as a drag, he said.
Amazon is expected to be the biggest drag of the FAANGs, with share-weighted earnings down 20 percent, while Alphabet is expected to be down 2 percent. However, Netflix is expected to be up 73 percent, Apple up 11 percent and Facebook up 16 percent.
Still, the group will over-contribute on revenue - expected to be up 15.7 percent while the S&P 500 as a whole will be up 4.6 percent, according to Reuters data.
Extra spending on warehouses to ship more goods to shoppers faster has weighed on Amazon's profit since the second half of 2016, creating tough year-over-year comparisons that only will ease in the third quarter of this year.
“They're an 800 pound gorilla," said Scott Freeze, portfolio manager of AdvisorShares New Tech & Media ETF (FNG) in Huntingdon Valley, Pennsylvania, referring to Amazon. "If Amazon does well, it will be good for everyone and it will rise all boats. If they don't perform as well, you'll probably see a broad based selloff."
Additional reporting by Jeffrey Dastin, Rodrigo Campos and Megan Davies; Reporting by Kimberly Chin; Editing by Tom Brown