Globe & Mail Futures tracking the technology-heavy Nasdaq 100 index sank 2% on Wednesday as investors priced in the prospect of a Democrat-controlled Senate that could lead to tighter regulations on technology mega-caps.
Democratic challenger Raphael Warnock won a hotly contested Senate race in Georgia over Republican incumbent Kelly Loeffler, TV networks and Edison Research projected. The race between Democrat Jon Ossoff and Republican David Perdue was still too close to call.
A so-called “blue wave” would give more scope for President-elect Joe Biden to act on his reform plans including new COVID-19 stimulus, but it could also mean higher corporate taxes and more regulations on the technology behemoths that led Wall Street’s recovery from a coronavirus-driven crash last year.
“We’re seeing a bit of a sell-off in Nasdaq (futures) because that’s where the outright war is going to come in terms of what the Democrats have said about breaking up big tech,” said Keith Temperton, an equity sales trader at Forte Securities.
Shares of Apple Inc, Microsoft Corp, Amazon.com Inc and Google-parent Alphabet Inc fell between 1.9% and 2.4% in early premarket trading. Tesla Inc was the only major technology stock trading higher.
By 4:26 a.m. ET, S&P 500 e-minis were down 18 points, or 0.48%, and Nasdaq 100 e-minis were down 242.25 points, or 1.89%.
Dow e-minis were nearly flat, with stimulus bets propping up shares of industrial bellwethers Caterpillar Inc and 3M Co. Futures tracking the small-cap Russell 2000 index jumped 1.3%.
“A ‘blue wave’ might not be a bad outcome for markets as decisive fiscal action will help to accelerate economic recovery,” said Vasu Menon, investment strategy executive director at OCBC Bank, Singapore.
Shares of big banks JPMorgan Chase & Co, Citigroup Inc and Bank of America Corp rose between 1.3% and 2.4%, tracking Treasury yields.
Hopes of a vaccine-powered economic recovery in 2021 had powered Wall Street’s main indexes to record highs in late-December, but sentiment has recently been dented by the discovery of a more contagious variant of the coronavirus and the latest restrictions.
Analysts also expect the market to consolidate December’s gains in January as asset managers look to rebalance their portfolios that had been heavily tilted toward equities.
The 10-year U.S. Treasuries yield rose above 1% for the first time since March, on expectations of larger government borrowing under a Senate split 50-50 with Vice President-elect Kamala Harris, as president of the upper chamber, becoming the tie-breaker.
“History tells us it is much easier to get things done when one party controls everything, as Democrats and Republicans have had difficulties cooperating for at least 30 years,” Danske analysts said in a note.
German bond yields followed Treasuries to hit their highest in almost five weeks.
The euro rose to as high as $1.2344, a level last seen in April 2018, while the yen hit a 10-month high of 102.57 to the dollar. The dollar hit its lowest in nearly six years against the Swiss franc.
Bitcoin rose more than 5% to a record high of $35,879 .
World stocks gained 0.1%, edging back towards recent record highs, and European stocks ticked up 0.08%.
But futures for the U.S. benchmark S&P 500 fell 0.7%, while Nasdaq futures slid 2.1%, on fears Democrats could pursue tighter regulations on big tech firms.
Other industries, such as banks, oil and gas and healthcare, could come under heavier scrutiny, while infrastructure and alternative energy sectors could benefit.
Oil prices rose to their highest since February 2020 after Saudi Arabia agreed to reduce output more than expected in a meeting with allied producers, while industry figures showed U.S. crude stockpiles were down last week.
U.S. crude futures rose to a high of $50.24 a barrel before trimming gains, having climbed 4.9% on Tuesday.
International benchmark Brent crude futures rose 0.54% to $53.89.
In Asia, Japan’s Nikkei fell 0.4% while MSCI’s index of Asian-Pacific excluding Japan erased earlier gains to trade flat.
Shanghai stocks extended gains, with the CSI300 index rising 0.7% and reaching its best levels since 2008, shrugging off New York Stock Exchange’s chaotic handling of how it will treat Chinese companies to comply with sanctions set by the Trump administration.
The exchange made a second sudden U-turn as it said it was reconsidering its plan to allow three Chinese telecom giants to remain listed.