(Bloomberg) — A familiar sight emerged in stock charts as early returns suggested a tight presidential race: Lopsided gains in tech shares that have come to be known as the stay-at-home trade.
December contracts on the tech-heavy Nasdaq 100 rallied 2.4%, while S&P 500 futures rose 0.8% as early results showed that President Donald Trump was narrowly ahead in several battleground states. The relationship, in which automated, algorithmic computer and internet megacaps run away from old-economy shares, has been a recurrent pattern in the Covid-19 era that had briefly reversed itself as polls pointed to a Joe Biden victory.
The move also suggests that markets are pricing out expectations of a clear Democratic sweep of Congress, which is the scenario most likely to produce the biggest fiscal-stimulus package, according to Invesco Ltd’s Kristina Hooper. While that would have ushered in an era of new stock-market leadership, investors are instead piling into so-called stay-at-home trades that have benefited amid the coronavirus pandemic, she said.
“That could be a sign of expectations of a slower- growth environment, greater difficulty getting over the pandemic, less fiscal stimulus and therefore a favoring of defensives and secular growth,” said Hooper, chief global market strategist for Invesco. “And of course, tech has been the poster child of secular growth.”
Video: Small cap stocks outperform as Wall Street weighs stimulus odds on Election Day (CNBC)
The small-cap Russel 2000 Index outperformed the Nasdaq 100 by the most since March 2018 last month. However, the status quo of a divided government would likely favor big tech companies, according to DWS Group.
“If it’s a mixed government, it’s still a good environment for tech companies,” said David Bianco, chief investment officer of the Americas at DWS Group. “You’re unlikely to get a big increase in corporate taxes. Less change, more status quo, more stability in taxes and regulation is good for all businesses including tech.”
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