In this news, we discuss the Wall Street Week Ahead: Big tech stocks may face post-election headwinds, no matter who wins.
NEW YORK (Reuters) – Some investors are betting that the tech and communications stocks that have sparked a massive rebound in U.S. markets this year will face a more difficult task in the months to come, than Republican President Donald Trump or Democratic challenger Joe Biden win Tuesday’s election.
Betting against big tech has been a risky proposition over the past decade, as stocks like Amazon, Google and Netflix have risen at the expense of so-called value and cyclical stocks like banks and energy companies.
Recently, however, some fund managers have expressed growing alarm at what they see as a consensus in Washington to tighten regulation, and the prospects that another big stimulus bill would encourage a rotation out of the bank. technology to other sectors, including economically sensitive value stocks.
“There will be a change and it will begin, but it will take time,” said Max Gokhman, head of asset allocation at Pacific Life Fund Advisors, which reduced its exposure to large-cap technology in September at a neutral overweighting.
If Biden wins, as polls suggest, tech companies could face higher tax rates and tax-motivated sales, as well as increased regulation, investors said.
Trump and Biden have both criticized big tech companies but have refrained from explicitly calling for their disbandment. Trump said that “there is something going on in terms of a monopoly” when asked about big tech companies.
Apple Inc AAPL.O, Microsoft Corp MSFT.O, Amazon.com Inc AMZN.O, Facebook Inc FB.O and Google-parent Alphabet Inc GOOGL.O now account for about 23% of the total weight of the S&P 500, according to the S&P Dow Jones Indices, giving their gyrations a disproportionate impact in broader markets.
Hedge fund manager David Einhorn of Greenlight Capital, a longtime tech bear, told clients in a letter this week that tech stocks were in the midst of a “huge bubble” that burst when the S&P 500 hit its record on September 2, 2020..
Technology shares fell on last week’s sell-off, although profits came from companies like Facebook, Alphabet and Amazon have shown how tech giants have grown their businesses this year.
“It has become more difficult for mega-pac technology to surprise on the rise,” analysts at UBS Global Wealth Management said on Friday.
Some investors have pointed out that the recent hearings in Washington are a sign that increased regulations will come to the industry, regardless of which party takes control in Washington.
The Justice Department’s lawsuit against Google in late October marked the first time the U.S. government has cracked down on a major tech company since it sued Microsoft Corp MSFT.O for anti-competitive practices in 1998.
“This may be the only bipartisan issue out there,” said Gokhman of Pacific Life.
An expected $ 2 trillion stimulus package from Biden, which leads Trump in national polls by 10 percentage points, could boost the appeal of underprivileged stocks such as hardware and building materials companies, investors said .
A shift to value stocks “is increasingly likely over the next 12 months,” said Eduardo Costa, who heads hedge fund Calixto Global Investors, LP.
Calixto, which invests heavily in tech, media and telecommunications stocks, has returned 30% since January, an investor said.
Potentially higher taxes under a Biden administration are another concern. Biden has proposed raising the corporate tax rate from 21% to 28%, which could weigh on corporate profits.
A separate proposal to tax capital gains and dividends as ordinary income could cause some investors to sell the winners in order to lock in lower tax rates, analysts said.
Brian Jacobsen, senior investment strategist at Wells Fargo Asset Management, said his company is underweight the Nasdaq Composite and is shifting more of its portfolios to cyclical stocks with more compelling valuations, especially industries.
“We’ve done a scenario analysis and thought about various permutations of who controls Congress and the White House and our general opinion is that maybe it doesn’t matter that much,” he said.
Reporting by David Randall and Svea Herbst-Bayliss; Edited by David Gregorio
Original © Thomson Reuters