In some ways, it’s a replay of how tech stocks rallied during the early stages of recovery from the epidemic in May, June and July. The rush to buy tech stocks reflects the sentiment of investors that these companies will thrive even if there is no major stimulus package from the divided Congress and economic reforms are not fragile.
“People are going back to the playbook that works if the economy is sluggish,” said Keith Lerner, chief market strategist at Truist / Suntrust Advisory. “When people become defensive about the economy, they buy technology.”
Stick with epidemic winners as gridlock looms
Investors, like animals, are facing strong and uncertainties in the pack, Cornell University associate finance professor Scott Yonker wrote in a report on Wednesday. “For investors, this means pouring money into recent ‘winners’.”
The key effect is that while the race for the White House is left in the game, investors have lost faith in the blue wave.
That’s a decisive change, as markets previously expected Democrats to succeed, paving the way for powerful monetary stimulus that would help non-tech companies.
Christopher Smart, chief global strategist at the Bearings Investment Institute, wrote in a report on Wednesday that the only pay-firm conclusion is that the “blue wave” has returned before reaching shore and the possibility of a stimulus package has been ruled out.
What happens to the financial stimulus now?
That situation led investors to buy economically sensitive stocks in the weeks leading up to the election.
“People turned to cheap, beaten-up areas in anticipation of excitement,” Lerner of Truist said. “Now, the market is concerned about the size of the financial package.”
Monetary stimulus is expected even if the government is divided, but it may not be as big as it will be under the blue wave.
Gridlock could also benefit tech stocks as it reduces the likelihood of a massive break from Congress. While the antitrust investigation could continue, Republicans and Democrats are unlikely to agree on a major new law.
Mike Lovingart, managing director of investment strategy at E * Trade, wrote, “The growing prospect of a split Congress raises fears about increased regulation against the sector.”
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