Wall Street Week Ahead: Big tech stocks may face post-election
headwinds, no matter who wins
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[October 31, 2020] By
David Randall and Svea Herbst-Bayliss
NEW YORK (Reuters) - Some investors are
betting the technology and communications stocks that drove a massive
rebound in U.S. markets this year will face a tougher slog in coming
months, no matter whether Republican President Donald Trump or
Democratic challenger Joe Biden wins Tuesday's election.
Betting against big technology has been a risky proposition over the
last decade, as stocks like Amazon, Google and Netflix have shot higher
at the expense of so-called value and cyclical stocks such as banks and
Recently, however, some fund managers say they are growing alarmed by
what they see as a consensus in Washington to tighten regulations, and
prospects that another large stimulus bill would bolster a rotation out
of tech and into other sectors including economically sensitive value
"There will be a shift and it is starting, but it will take time," said
Max Gokhman, head of asset allocation at Pacific Life Fund Advisors,
which cut its exposure to large-cap tech in September to neutral from
Should Biden win as polls suggest, technology companies could face
higher tax rates and tax-motivated selling as well as increased
regulation, investors said.
Both Trump and Biden have criticized large tech companies but stopped
short of explicitly calling for them to be broken up. Trump has said
“there is something going on in terms of monopoly” when asked about big
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 make
up approximately 23% of the total weight of the S&P 500, according to
S&P Dow Jones Indices, giving their gyrations an outsized impact on
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
middle of an “enormous bubble” that popped when the S&P 500 hit its
record high on Sept. 2, 2020.
Technology stocks tumbled in the past week's selloff, though earnings
results from companies like Facebook, Alphabet and Amazon have shown how
the tech giants expanded their businesses this year.
"It has become more difficult for mega-cap tech to surprise on the
upside," analysts at UBS Global Wealth Management said in a note Friday.
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People wearing protective face masks walk outside the New York Stock
Exchange in Manhattan in New York City, New York, U.S., October 26,
2020. REUTERS/Mike Segar
Some investors pointed to recent hearings in Washington as a sign that increased
regulations will come to the sector no matter which party takes control in
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 bi-partisan issue out there," Pacific Life's Gokhman said.
An expected $2 trillion stimulus package by Biden, who leads Trump in national
polls by 10 percentage points, could enhance the appeal of out-of-favor stocks
like construction equipment and materials companies, investors said.
A shift to value stocks "is increasingly likely over the next 12 months," said
Eduardo Costa, who runs hedge fund Calixto Global Investors, LP.
Calixto, which invests largely in technology, media, and telecom stocks, has
returned 30% since January, an investor said.
Potentially higher taxes under a Biden administration are another worry. Biden
has proposed increasing the corporate tax rate to 28% from 21%, potentially
weighing on companies' earnings.
A separate proposal to tax capital gains and dividends as ordinary income could
prompt some investors to sell winners in order to lock in lower tax rates,
Brian Jacobsen, senior investment strategist at Wells Fargo Asset Management,
said his firm has been underweighting the Nasdaq Composite and is moving more of
its portfolios into cyclical stocks with more compelling valuations, especially
"We've done some scenario analysis and thinking through various permutations of
who controls Congress and the White House and our general view is that it might
not matter all that much," he said.
(Reporting by David Randall and Svea Herbst-Bayliss; Editing by David Gregorio)
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