Once the smoke clears after November 3, tech stocks face trouble if Biden wins the elections. The tech sector is outperforming other industries during the pandemic. They have the momentum to continue their rise in 2021. One event though can disrupt the seemingly endless bull run: a Democrat Blue Wave.
Bank of America analyst Justin Post believes that a Biden win could reverse the tech sector’s gains. He said: “The Democratic Party has become increasingly critical on Internet company market power, with more liberal members, such as Elizabeth Warren…calling for breakups or utility-like regulation.”
Tech Stocks Booming in 2020
This year, tech stocks outperformed the market. Leading the charge are FAANG stocks: Facebook, Apple, Amazon, Netflix, and Google. Microsoft and Tesla are also mentioned among the tech stock darlings of 2020. The Standard & Poor Technology Sector Index rose 29% for the year. Among its top ten stocks are Facebook, Apple, Amazon, and Alphabet (Google).
Nasdaq and its tech-heavy stocks also grew 21% despite the pandemic. Meanwhile, the entire S&P 500 managed a 5% growth at the same time. FAANG, less Netflix, held a market value of $5.5 trillion dollars, which is four times its value two years ago. Together, Apple, Microsoft, Amazon, Facebook, and Google make up almost a quarter of the S&P 500’s value. Any movement on these stocks can cause impacts on the entire market. Apple alone has a $1.9 trillion market cap.
Some non-FAANG tech stocks are also making headlines. Tesla started at $86.65 in January and now trades at $388.04. At one point the stocks traded at $498.32. Despite its remarkable growth and consecutive profitable quarters, Tesla has yet to join the S&P 500.
Tech’s Runaway Growth Draws Attention
Tech stocks growth did not escape the notice of politicians from both parties. Senator Warren noted in 2019 that “big tech companies have too much power–too much power over our economy, our society and our democracy.”
Last month, the Justice Department filed an antitrust suit against Alphabet. The suit highlighted its relationship with another monopoly suspect- Apple. Bank of America reported that Apple earns around $10 billion from Google each year. They do so by being the preferred search engine in Apple products.
A Democrat Senate Can Spell Trouble for Tech Companies
If Democrats overrun the Senate, tech companies should expect to get a rude awakening. Dems would be more apt to rewrite antitrust laws to fit modern megacompany behaviors.
If Democrats manage to flip four Senate seats can jumpstart panel hearings over big tech. Former Federal Trade Commissioner Joel Mitnick expects changes if this happens. The target? Sweeping updates to century-old antitrust laws that are more applicable to mega-corporations.
Presidential candidate Joe Biden campaigned to scrutinize big tech. Investors fear higher tax rates, tax-motivated selling, and increased regulation.
The Return of Value Stocks
Biden currently leads Trump by 10 points in national polls. Should he win, Eduardo Costa of Calixto Global says that a shift to value stocks might happen. A stimulus package expected to cost $2 trillion can highlight non-tech stocks. These include the likes of building materials and construction companies.
Higher taxes are another possible outcome. Biden already said he’d like to tax the rich more. Plus, he batted to raise corporate taxes from 21% to 28%. Another proposal wanted to tax capital gains and dividends as ordinary income. If this happens, expect investors to sell off prized stocks to stay existing tax rates.
Democrats’ Relationship with Big Tech Different
Robert Kaminsky of Capital Alpha Partners expects a Dem win would be more on data privacy than antitrust law. He said that he sees “a Democrat Senate providing a Biden administration with a better chance of passing privacy legislation and making changes to Section 230 liability protections.” He noted that “jurisdictional issues within Congress still present a challenge to finding consensus.”
Height Commentary finance analysts agreed. They said: “We don’t see antitrust as a huge White House focus in a Biden presidency.”They do expect the Justice Department and FTC “to take a much more aggressive stance than past administrations.”
Senator Warren is the unknown quantity. As a Democratic candidate, she called for breaking up Google and Facebook. She can launch her platform in two ways. She can continue her ways in a Democrat-controlled Senate. Or she can use an appointment from Biden to start her platform against big tech.
A previous quote from Warren typifies her stance. She said: “Americans all across the country are seeing how Big Tech has used its massive power to harm our economy and our democracy. When Democrats win in 2020, it should be a top priority for us to stop these giants from rigging the rules in their favor and against everyone else.”
Watch this as CNBC's “Halftime Report” team discusses why selling off tech stocks at this point is not a good idea:
What do you think will happen to big tech companies under a re-elected Trump? What about a Democrat administration? Let us know under what administration will big tech thrive better. Share your thoughts in the comment section below.
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