In this news, we discuss the Analysis: High-flying U.S. tech stocks get post-election lift, near new highs.
NEW YORK (Reuters) – Weaker-than-expected election performance by Democrats and fears of further coronavirus restrictions have prompted investors to double high-profile tech stocks, which have come back in force in recent days to put the Nasdaq in at hand of a record.
Since polling day, the high-tech Nasdaq Composite has risen 6.6%, easily outpacing the large S&P 500’s 4.2% gain over the same period. This was in part driven by investors and traders unwinding trades placed on pre-election assumptions of a Democratic sweep that they believed would result in higher taxes and more regulation.
Polls predicted the Democrats would firmly win the presidency on Tuesday, expand their control in the House of Representatives, and potentially gain control of the Senate. While Democratic candidate Joe Biden looks likely to win the presidency, the margin of victory appears to be extremely slim; Democrats have lost seats in the House and the Senate is evenly divided ahead of the second round of elections in Georgia on January 5.
The result leaves Democrats in a weak position to push through a phased program to increase corporate tax rates and capital gains, said Steve Chiavarone, portfolio manager at Federated Hermes .
Investors were expected to sell high-tech stocks and block current levels of capital gains taxes ahead of a strong Democratic performance in the election.
But there will still likely be sales of tech stocks for tax reasons at the end of the calendar year before the second round of Senate elections on January 5, Chiavarone warned.
“Even though a second round of the Georgia Senate is a risk in the eyes of the street, these two seats turning blue is a highly unlikely scenario,” said Dan Ives, analyst at Wedbush Securities, who sees a risk of selling for ends. fiscal. late December, but expects tech stocks to rise another 15% by year-end.
Beyond the short-term impacts that rocked the technology this week, investors said the long-term reasons for owning a technology remain.
“Tech has been inexpensive, at least compared to where it’s been, and that sets it up nicely if we’re to go back to a stricter stay-at-home mandate, ”said Jim Paulsen, chief strategist of investments at The Leuthold Group.
Apple AAPL.O, for example, is now trading at a price-to-earnings ratio of 35.1, from its 52-week high of 40.9, while Amazon.com Inc AMZN.O is trading at a P / E of 94.9, up from 52 – the week high of 152. Microsoft MSFT.O is trading at a late P / E of 36, down from its 52 week high at 40.2, while Facebook FB.O is trading at a P / E of 34.9, down from its 52-week high of 38.8.
CONCERNS ABOUT CORONAVIRUS
The rise in coronavirus cases may also spark investor demand, believing that record cases in the United States will prompt state and local authorities to impose further economic restrictions. [FWN2HQ12G]
“You are seeing outbreaks (COVID-19) and real issues around the world, and these are the same types of businesses – Apples, Netflix, and PayPals – that have performed so well during the pandemic that investors think. keep doing. good if we have some other form of aggressive foreclosure, ”said David Marcus, chief investment officer at Evermore Global Advisors.
Overall, investors are likely to remain bullish on tech stocks until there are greater signs that the economy as a whole has recovered and that coronavirus treatments and vaccines become widely available. said Brian Jacobsen, senior investment strategist for Wells Fargo Asset’s multi-asset solutions team. Management.
Tech stocks “are those which have been able to prove that they have very resistant business models to this new economy that we are going through,” he said.
Still, some investors have warned of the risks of betting too much on technology.
“The idea that these big tech companies are the only game in town challenges the way the economy works,” said Bill Smead, chief investment officer at Smead Capital Management.
Reporting by David Randall; additional reporting by Elizabeth Howcroft in London; edited by Megan Davies
Original © Thomson Reuters