Futures tied to the tech-heavy Nasdaq 100 index tumbled nearly 1.5% on Wednesday as the likelihood of Democrats gaining control of the Senate sparked fears of increased regulatory scrutiny of technology mega-caps.
Democratic challenger Raphael Warnock won a hotly contested Senate race in Georgia over Republican incumbent Kelly Loeffler, while Democrat Jon Ossoff held a narrow lead over incumbent Republican David Perdue in the other race.
A final outcome is not expected until later on Wednesday at the earliest.
A “blue wave” would give more scope for President-elect Joe Biden to act on his agenda including new stimulus, but it could also mean higher corporate taxes and more regulations for technology behemoths, which led Wall Street’s recovery from a coronavirus-driven crash last year.
“If the Democrats take control of the Senate, corporate taxes are going to go up and that’s a negative for Corporate America and for equities,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
“In the short term, it is likely to cap stocks and could be the catalyst for a pullback.”
Apple Inc, Microsoft Corp, Amazon.com Inc, Google-parent Alphabet Inc and Facebook Inc dropped between 1.6% and 2.4% in early premarket trading.
Tesla Inc was the only major technology stock trading higher.
At 08:35 a.m. ET, Nasdaq 100 E-minis were down 177.75 points, or 1.39%, and S&P 500 E-minis were down 9.75 points, or 0.26%.
However, Dow e-minis climbed 0.14% as bets on another round of stimulus and infrastructure spending propped up shares of industrial bellwethers Caterpillar Inc and 3M Co. Futures tracking the small-cap Russell 2000 index jumped to a record high.
Shares of JPMorgan Chase & Co, Citigroup Inc and Bank of America Corp rose between 2.5% and 3%, tracking a sharp rise in the benchmark 10-year U.S. Treasury yield. [US/]
Hopes of a vaccine-powered economic recovery in 2021 pushed Wall Street’s main indexes to record highs in late-December, with sectors that had previously lagged, including banks, industrials and energy, fuelling the rally.
“You are seeing more evidence of a rebound in value over growth, and it feeds into the debate as to whether investors should pile into more cyclicals which are co-related with value or stick to bigger players within the growth space given that valuations in some cases are quite extreme,” said Sebastien Galy, macro strategist at Nordea Asset Management.
“Market is quite nervous about its position in large tech.”
Invesco Solar ETF gained about 5.6% on expectations that clean energy companies will benefit under a Democrat-controlled Congress, while bets on decriminalizing marijuana at the federal level lifted ETFMG Alternative Harvest ETF up 8%.
AmerisourceBergen Corp gained 4.6% after the U.S. drug wholesaler said it would buy Walgreens Boots Alliance’s drug distribution business for $6.5 billion to expand in Europe. Dow component Walgreens rose 2.2%.
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