How the Nasdaq and tech stocks became the winner on election night

Published Wed, Nov 4 20204:03 AM ESTUpdated Wed, Nov 4 20209:36 AM EST

There might not have been a winner in the presidential election on Tuesday night, but there was a winner in the financial markets: the Nasdaq 100 and tech stocks broadly. Futures contracts tied to the Nasdaq 100 index jumped as much as 4% in overnight trading on Tuesday amid a volatile trading session that saw Dow futures register a nearly 800-point swing from high to low. The index was up more than 3%, while the broader Nasdaq Composite gained about 2.6%, shortly after the market opened on Wednesday morning. Shares of Facebook jumped more than 6% in early trading. Alphabet and Amazon both gained about 4%, while Netflix and Apple added 3.5% and 3%, respectively. Wall Street traders and investors attributed the gains to a number of factors, including the possibility that Congress would remain split, making sweeping legislation — including some that could potentially harm the largest tech companies — harder to pass. They also cited tech's appeal as a safety trade amid the election uncertainty, given the group's resilient earnings growth amid the pandemic The tech sector was viewed as vulnerable to a blue wave given former Vice President Joe Biden's pledge to raise the capital gains tax. Since the largest tech names including the so-called FAANG stocks — Facebook, Amazon, Apple, Netflix and Google-parent Alphabet — have outperformed, the belief was that under a blue wave scenario investors would shed these names in order to take advantage of the lower capital gains tax before Biden hiked the rate. Anything but a blue wave was viewed as more favorable for the group since passing legislation of this nature would be difficult with a divided Congress. Since President Donald Trump took office, tech stocks have been the clear winner. The Nasdaq Composite has more than doubled, gaining 101%. By comparison, the S & P 500 and Dow Jones Industrial Average have gained 49% and 39%, respectively. "Tax harvesting could be more aggressive this year ahead of a potential surge in the tax rate on investment gains under a Biden win - his proposal includes a move from capital gains to ordinary income rates," Bank of America wrote in a note to clients on Monday ahead of the election. "With AAPL, MSFT, AMZN, GOOG, and FB among the top 10 most held retail stocks for multiple years, and with all having posted sizable gains in individual investor portfolios over the multi-year period, clients may be more likely to sell and harvest gains in 2020," the firm added. Greater regulation was seen as another possible headwind for the tech sector , with Democrats including Elizabeth Warren calling for increased oversight of tech giants. "Many investors attributed the recent rally in cyclical sectors to expectations of a Biden win, but with the race clearly tightening, the tech sector is back in favor on hopes of less regulation under a second Trump administration," Andrew Smith, chief investment strategist at Delos Capital Advisors, told CNBC. Additionally, strategists said a blue wave would have made another stimulus package easier to pass, which could have led to investors shedding growth stocks in favor of areas of the market that have been hit the hardest since the coronavirus pandemic took hold. But others noted that the Nasdaq 100 moved higher in the face of a potentially contested election result simply because the sector has continuously provided attractive returns for investors. "The presidential race is a lot closer than people expected, but we still don't have a sense of who will win yet," Aquiles Larrea, founder and CEO of Larrea Wealth Management, noted. "With that, investors are betting that the tech stocks that worked well for so long will continue to work, even with all of this political uncertainty." Jeff Kilburg, founder and CEO of KKM Financial, reiterated this point, noting that the group of FAANG stocks specifically have in a way become their own safe-haven trade. He pointed to the 2% divergence between Nasdaq 100 futures and S & P 500 futures during overnight trading as indication of tech's resilience. "The Nasdaq 100 continues to provide leadership. Over the last four years of president Trump we've had a 22% annualized return in tech — it's the number one sector," he said.

The logo of Apple company is seen outside an Apple store in Bordeaux, France, March 22, 2019.

Regis Duvignau | Reuters

There might not have been a winner in the presidential election on Tuesday night, but there was a winner in the financial markets: the Nasdaq 100 and tech stocks broadly.

Futures contracts tied to the Nasdaq 100 index jumped as much as 4% in overnight trading on Tuesday amid a volatile trading session that saw Dow futures register a nearly 800-point swing from high to low. The index was up more than 3%, while the broader Nasdaq Composite gained about 2.6%, shortly after the market opened on Wednesday morning.