- Georgia’s run-off election results are creating heightened uncertainty for Big Tech names, as the likelihood of regulation from a Democrat-controlled Senate increases.
- Facebook, Apple, Amazon, Netflix, and Google were all down around 2% in premarket trades.
- Traders and strategists argue that cyclical and value stocks will benefit from the result, while FAANG names may suffer.
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Early trading after the open on Wednesday morning reflected fears among investors that FAANG stocks could be in for a rough ride with Democrats likely to take the Senate. Shares of both Facebook and Apple were down almost 3%, while Amazon and Google parent Alphabet were each down nearly 2%.
Democrat Raphael Warnock has pulled off a narrow victory in one of the two Senate runoffs, while Jon Ossoff is also leading a close race against Republican candidate David Perdue, with the only votes remaining to be counted from democratic strongholds around Atlanta.
Big tech names were trading lower, as companies like Facebook, Amazon and Google are likely to face greater pressure from Democrats in the Senate, who have promised greater scrutiny of tech giants, according to the New York Times.
The potential for a more aggressive regulatory approach from Democrats should have Big Tech investors ready for underperformance, argues Tom Essaye, founder of Sevens Report.
Essaye said in a note, “in the immediate term, markets are pricing in more stimulus. From an equity standpoint, that means tech underperformance and cyclical/value outperformance. The biggest takeaway from the Democrats win is more power behind the cyclical/value/higher rates trade,” per CNBC.
“Once the market digests this result, a pullback would not shock us at all, as at these levels the market is not pricing in tougher regulation, substantially higher rates or an earnings headwind, and the chances of all three went up overnight.”
On the other hand, Brian Levitt, global market strategist at Invesco said in a note that he expects value stocks and emerging markets to benefit as a result.
Levitt said in a note he believes Democrats may “use their latest opportunity to advance greater fiscal spending to support the economic recovery. In a more-pronounced economic recovery, we would expect an even further rise in Treasury rates, tightening of municipal and corporate bond spreads, weakening of the dollar, and higher performance of value stocks and emerging market equities,” per MarketWatch.