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NOV. 06, 2020

Big Gains for Tech Stocks

Performance since Election Day
(November 3, 2020)

Facebook (FB US) +11.07%

Amazon (AMZN US) +8.97%

Apple (AAPL US) +7.78%

Microsoft (MSFT US) +8.17%

Alphabet (GOOGL US) +7.10%

It’s Election week (that’s right, week, not day)! At the time of writing this note, no clear winner has emerged as the race to the White House is proving to be much closer than anticipated in the polls. And it seems that equity markets are taking their bets as well. With tech stocks and healthcare stocks all up sharply on Election Day (Wednesday), it seems that markets are not anticipating any major changes to the status quo in the coming months, even if the President of the United States of America won’t be the same. Currently, the votes are still being counted in a handful of key states. But it seems that investors are pricing in the possibility that Joe Biden will win the race for the White House and that Republicans will keep control of the Senate. And stocks have been soaring since.

In the previous weeks leading up to the election, the polls clearly favored a Joe Biden win on Election Day, as well as a broader “blue wave” sweep, hence, giving the Democrats tight control of Congress. It was assumed, that such an outcome would pave the way for massive amounts of stimulus spending, which in turn would lead to a lot of new debt being floated. Perhaps, this could also have an inflationary effect.

For a lot of investors, a dreaded “nightmare scenario” would have been delayed election results. Though that is the case, markets have rallied all day on Wednesday. Arguably, markets may have received a boost from a pricing-in of a potential election delay, as well as hopes for a Democratic White House paired with a Republican Senate – the likely outcome of that combination would be a more modest policy.

Outperformance in the tech sector

Looking at the tech sector, it’s notable that the FAAMG stocks are among the big winners, especially given the antitrust troubles these companies have been bombarded with lately. Many of the tech giants are currently facing a lot of antitrust strutiny from both sides of the aisle (Democrats and Republicans), with Facebook in particular, having been turned into a political scapegoat over the last couple of years. Even though Democrats and Republicans are in broad agreement that the tech titans have monopoly power, there are party differences on how to fix the problem. Democrats specifically, have taken a much harder line on the whole issue and have sent a clear message to the FAAMG companies: You have monopoly power, and you are now at risk of being broken up!

In the case of a Biden Administration, it would surely result in tougher antitrust scrutiny for tech giants. However, assuming a Biden Administration has to cooperate with a Senate controlled by Republicans, legislative action towards the tech giants could be more limited than might have been the case in a blue-wave scenario.

We thank you for the continued support.