Wild gyration at the initial start of the counting of votes for the much talked about US presidential election had ended with a melt-up in stocks when the current votes count had skewed in favour of Joe Biden winning the President seat and Republicans retained control of the Senate.
US technology related stocks posted stellar performance with the tech heavy Nasdaq 100 advanced + 4.4% with an accumulated gain of +7.5% from 02 November 2020 low; on track to cap its best weekly performance since 13 April 2020. The S&P 500 added +2.2% and the Russell 2000 almost unchanged.
The narrative seems to be suggesting that a Biden win coupled with a Republican controlled Senate has now toned down the possibility of a corporate tax hike as advocated by Biden during his campaign trail. In addition, the passage of a large US$2 trillion second fiscal stimulus package seems remote now as key Senate Republican members detest this “enormous amount” The onus to provide more stimulus will come from the US central bank, the Fed to enact more easing monetary policies as perceived by market participants.
Hence, all in all such expected liquidity backstop provided by the Fed and no corporate tax hike tend to benefit technology stocks especially the Big Tech (Apple, Google/Alphabet, Facebook, Amazon & Microsoft) while value oriented as well as clean energy stocks saw outflows due to lack of a huge fiscal stimulus package and Biden’s green energy policies getting less traction in a Republican controlled Senate.
However, the current rally in stocks led by technology related names may be unstainable once the “dusts” have settled down.
- The risk of a contested US presidential election results remains high as incumbent President Trump’s latest comments have indicated that he will challenge the “validity” of mail in ballots that contributed significantly to Biden’s victory in swing states; Wisconsin and Michigan. Hence, a ruling made by the Supreme Court over an inconclusive presidential election can takes weeks or months to resolve where the “uncertainty negative feedback loop” is likely to spiral back into the markets.
- The Fed that is taking over the extra burden of providing the extra liquidity from the short-fall of a toned done second fiscal stimulus package seems to be a “mirage” as Fed Chair Powell and other members have indicated in their previous speeches that fiscal stimulus is likely to be the main driver to jumpstart economic growth from the current pandemic crisis as the marginal benefits from more accommodating monetary policies will be less effective. Also, the enacting of some form of or providing future guidance of a “yield curve control” programme in the upcoming FOMC (today) seems remote at this juncture.
- The risk of the passage of antitrust measures against Big Tech firms next year by the US government is still on the radar when both Democrats and Republicans have “a common ground” that Big Tech needs a gut check.
Over to Asia; key benchmark stock indices have advanced at this time of the writing as a Biden administration is likely to be perceived as less hawkish in the on-going US-China trade/tech war. Japan’s Nikkei 225 (+1.0%), South Korea’s KOSPI 200 (+1.5%), Hong Kong’s Hang Seng Index (+2.3%) and Hang Seng’s Technology Index (+4.2%). China’s CSI 300 (+0.7%). Singapore’s Strait Times Index added +1.9% led by the heavy weights banking stocks; DBS +3.4%, UOB +2.6% and OCBC +3.4%.
Alibaba Group Holding (9988), a major China technology firm had added +4.5% to HK$289.60 despite its Ant Group’s mega initial public offer had been suspended by the Chinese authorities. Hence, its current price movement seems to be more impacted by macro environment (a less hawkish Biden administration & US tech stocks rally) rather than firm specific factors.
Events to watch
Bank of England (BoE) monetary policy meeting where the key interest rate is expected to remain unchanged at 0.10%.
US Federal Reserve FOMC where the key Fed rate is expected to be unchanged at 0.25%
Alibaba (BABA) earnings result announcement for the September quarter before the US session opens; consensus estimates from FactSet (sales to increase by 31% to CNY 155 billion and earnings per share is expected to come in at CNY 14.16).
Chart of the day - Watch the 12180 resistance on Nasdaq 100
Source: CMC Markets platform