US election jam bolsters Big Tech as safe haven

The US election non-result is burnishing Big Tech’s safe-haven credentials. Stocks like Facebook rose after the inconclusive early vote counts, outperforming other sectors. Likely paralysis in Washington will make the technology giants safer from aggressive antitrust action.

The lack of a clear winner in Tuesday’s vote may cause weeks of uncertainty, and President Donald Trump’s threat to contest the election up to the Supreme Court is potentially incendiary. US 10-year Treasury yields fell over 10 basis points to around 0.8%, perhaps reflecting a reduced likelihood of a Democratic sweep and a massive stimulus package. Yet the Nasdaq 100 Index of technology stocks rose over 4%.

It’s not the first time relatively risky technology shares have provided a safe harbour. After an initial fall as Covid-19 took hold in March, the so-called FAANG stocks – Facebook, Amazon.com, Apple, Netflix and Google-owner Alphabet – bounced back more quickly, outperforming even gold, the perennial safe asset. They are up 50% year to date on average, versus the yellow metal’s 25% rise and the S&P 500 Index’s 7% gain.

That outperformance in part reflected the companies’ business models. Lockdowns prompting people to work from home, shop online and binge-watch TV have spurred demand for Big Tech products. While financials, industrials and oil and gas groups have all seen 2021 earnings estimates drop markedly, FTSE Russell research shows tech-sector forecasts have barely budged.

The election too, could help. Investors feared a Biden win could see Democrats with majorities in both chambers of Congress, making it easier for them to impose higher taxes and perhaps even try to break up some larger tech companies. That no longer looks so likely. Big Tech may be facing a less daunting four years than expected.

The sector is far from a perfect safe haven. Trump is, for example, already going after Google on antitrust grounds, and even a divided Congress could crack down. And while the president may use Twitter incessantly, he’s no fan of Amazon. Despite a recent dip, FAANG shares trade on 43 times historic earnings, against the S&P 500’s 28 times. If investors are willing to seek safety in German Bunds yielding negative 65 basis points, though, owning a stake in a growing tech group that’s dominant in its market should be even more reassuring.