The big 5 technology stocks now represent 25 of the SPs value what could disrupt these behemoths
So, what could 2021 have in store for these mega-cap tech stocks – more of the same, or could we see a slowdown or even a reversal of the seemingly insatiable bullish trend?
Is WFH the new norm?
Demand surged for products and services offered by the big five throughout the pandemic, amid increased work from home (WFH) tendencies and the digital revolution. Adoption of these trends will inevitably slow a bit, but they’re unlikely to reverse any time soon.
So, while the initial demand spike is expected to ease, the multi-year subscriptions that often come with these products will mean customers are well and truly entwined in the FAAMGs’ ecosystems for the foreseeable. The WFH trend, in addition to many other areas of digital transformation, is unlikely to return to the old norm. The fact that these trends were solidly in place before the pandemic even hit gives them staying power. In other words, a return to pre-pandemic norms is not expected to disrupt these mega caps.
The Impact of a COVID 19 vaccine.
In addition to an increase in demand for products and services offered by the big five, the FAAMGs have also taken on a safe-haven status across the pandemic which has driven demand higher. Quite simply, investors were buying into these stocks on the assumption that they would rise in value despite the ongoing COVID crisis and the economic fallout from the pandemic.
The arrival of a vaccine and its broad distribution early next year has already seen risk appetite rise and safe-haven demand slip. The FAAMGs struggled to advance and even lost ground on the days of vaccine euphoria. As the vaccine rolls out and COVID fears ease, demand for these tech stocks could lessen.
Covid 19 - Rally broadens out
While the big five have driven the lion’s share of the rally across the year, that changed in November as vaccine news and easing election uncertainty sent other stocks soaring. The S&P gained 11% in its best month since April. According to FactSet, 467 stocks in the S&P rose, the largest share of any month since April. In October, this was just 212. In September it was 153.
As the economic outlook has brightened, cyclical sectors have outperformed the dominant tech stocks. With US consumers still spending well – plus with services and manufacturing PMI surveys remaining resilient despite rising COVID numbers – optimism is growing that the economy could bounce back next year.
We could expect to see the rally broaden out further, which could see the FAAMG rally at least slow. Interestingly, the tech sector is this year’s top performer but barely advanced in November while other sectors, such as financials, surged 17%. The downtrodden energy sector jumped 27%.
Joe Biden
The policies of the new US President are expected to be a mixed bag. On the one hand, higher corporation tax and capital gains tax could drag on US stocks – although that could be more than offset by ample government fiscal stimulus spending.
The outlook for US tech isn’t quite so soothing, and the new US President could in fact be one of the largest risks to the FAAMGs in the coming year. Joe Biden and the Democratic party in general have been more critical of the increasing concentration of economic power in the tech giants. The threat of regulatory action is clear and present.
Even under the Trump Presidency, the Department of Justice pursued anti-trust action against Apple and Google. The appetite to rein in tech giants is not new but it may get fresh legs under Biden. Signs of regulatory reforms, a Frank-Dodd Act for tech, or even talk of splitting some of these firms up could bring a swift end to the impressive rally. That said, should Republicans retain the hold over the Senate, the Democrats could struggle to push some of these more aggressive policies through Congress.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.
ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.
City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.
The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.
The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.
The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.
This advertisement has not been reviewed by the Monetary Authority of Singapore.
© City Index 2024