Daily Outlook

Shares of US Tech giants stagnate and risk pulling markets down

The demand for risk assets in global markets is growing. Democrats in the USA and the White House are closer to agreeing on a stimulus package, despite the opposition of the Republican Party. Progress in the discussion of this programme remains the main driving force behind American markets, with a relative impact on European markets as well.

The recovery in equity purchases supports the dollar and government bond sales, returning interest in risk assets. However, at this stage, the interest extends beyond the US High-tech giants, as they are lagging in the recent market recovery.

Since the September correction, capitalisation leaders – Apple, Alphabet, Microsoft and Amazon – now stand 7-11% below their early September levels amid a 4% decline of S&P500 from its historical peak.

Still, these companies have grown substantially so far this year: from +14% for Google and +70% for Amazon compared with a 5.5% increase in the S&P500. This strength seems to have attracted increased attention from the authorities which is increasingly playing against them.

The US antitrust authorities have announced that they are launching an investigation against Google and its position among search engines. The authorities say that others (such as Facebook and Amazon) are also under scrutiny. Previously, Apple was hit by Apple Store commissions.

The European authorities, for their part, are also not bypassing Google and Amazon by periodically issuing fines and making more and more demands that limit the position of companies. This morning news came that Australia is also considering an antitrust investigation against Google.

Apple seems to be the least likely to draw attention from authorities outside the US, but there are also enough risks. The trade wars between China and the United States are raising political tension. Apple is gradually withdrawing production from China to cut costs but this also makes the company more vulnerable to China’s answer to Huawei’s case. For Apple, restrictions on sales in China, one of the fastest-growing markets and potentially the biggest could be a big blow.

While the Chinese are avoiding pressure on US technology giants, support for local producers is still only at the level of individual companies, and not government policy. However, with an escalation of trade disputes, China may use this too in the future.

Investors should be wary of placing their bets on high-tech giants that are further separated from the rest of the market. Rather, on the contrary, in the coming quarters and even years, they may keep indices from growing rather than pulling them upwards.

The FxPro Analyst Team

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