Futures tied to the tech-heavy Nasdaq 100 index sank 2% on Wednesday as the possibility of Democrats gaining control of the Senate sparked fears of tighter regulations on 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 so-called “blue wave” would give more scope for President-elect Joe Biden to act on his reform plans including the new COVID-19 stimulus, but it could also mean higher corporate taxes and more regulations for technology behemoths, which had led Wall Street’s recovery from a coronavirus-driven crash last year.
“If Democrats hold both Houses then there will be more pressure to regulate some of the bigger play within the growth and most of the (market) gains are concentrated in them,” said Sebastien Galy, macro strategist at Nordea Asset Management.
Apple Inc, Microsoft Corp, Amazon.com Inc, Google-parent Alphabet Inc, and Facebook Inc dropped between 2.2% and 3.2% in early premarket trading.
Tesla Inc was the only major technology stock trading higher.
At 06:50 a.m. ET, Nasdaq 100 E-minis were down 253 points, or 1.98%, and S&P 500 E-minis were down 13.75 points, or 0.37%.
However, Dow e-minis climbed 0.2% as bets on a larger fiscal stimulus and infrastructure spending propped up shares of industrial bellwethers Caterpillar Inc and 3M Co. Futures tracking the small-cap Russell 2000 index jumped 2.5% to a record high.
Hopes of a vaccine-powered economic recovery in 2021 had sent 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 overgrowth, 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,” Galy added.
“Market is quite nervous about its position in large tech.”
Shares of JPMorgan Chase & Co, Citigroup Inc, and Bank of America Corp rose between 1.3% and 2.4%, tracking a sharp rise in the benchmark 10-year U.S. Treasury yield.
Invesco Solar ETF gained about 5% on expectations that clean energy companies will benefit under a Democrat-control Congress, while bets on the decriminalization of marijuana at the federal level lifted ETFMG Alternative Harvest ETF up 8.4%.