The upcoming election could bring sweeping change to Washington -- but for tech stocks and the market more broadly, the outcome could be a bit more subtle.
In a typical election year, investors tend to focus on what candidates' proposed policies -- ranging from taxation to regulation and government subsidies -- could mean for stock indexes. But this is not a typical election year.
With COVID-19 wreaking havoc on the economy, the election appears secondary to other macroeconomic forces at stake. At least for right now.
"Markets have registered a 'could care less'" about the election so far, said Scott Colyer, CEO at Advisors Asset Management. "Over 45% of GDP is now government spending. That bridge is going to extend for a long time...I think we're going to live with this for awhile. I'm not sure the election really matters that much."
Big Tech specifically -- which makes up an outsized chunk of the market -- could find a somewhat different environment if Joe Biden and Kamala Harris take the White House. Regulation of the sector could materialize. But that's not necessarily a bad thing, added John Freeman, vice president of equity research at CFRA.
"We do see legislation in a Biden-Harris administration," Freeman said. "That brings clarity to a lot of the issues that, honestly, a lot of the big tech guys also wouldn’t mind being clarified."
If Democrats sweep Washington in November, data privacy regulation could advance more quickly through Congress. Biden has also proposed an increase in corporate taxes, aiming to raise the corporate tax rate from 21 to 28 percent and to establish minimum corporate taxes for domestic and foreign income.
But between Biden and Harris, a California senator with friendly ties to Silicon Valley, investors don't expect a particularly hostile posture towards tech. A breakup of the biggest tech firms -- Apple (AAPL) - Get Apple Inc. (AAPL) Report, Amazon (AMZN) - Get Amazon.com, Inc. Report, Alphabet (GOOGL) - Get Alphabet Inc. Class A Report, Microsoft (MSFT) - Get Microsoft Corporation (MSFT) Report and Facebook (FB) - Get Facebook, Inc. Class A Report, which make up about 20% of the stock market's total value -- is considered unlikely no matter who wins in November.
"I'm not sure if you can really separate these entities," added Cornelio Ash, analyst at William O'Neil.
Generally, investors see Democrats as more likely to scrutinize big business, impose higher corporate taxes, or look more carefully at major mergers and acquisitions. But President Trump's record of meddling with private industry, most recently threatening to ban TikTok unless a U.S. company buys it, muddies that narrative.
"The White House wants to lean towards Microsoft taking over TikTok," Ash added. "Pulling investor sentiment out of it...we're setting precedent and the ramifications would be lasting."
Right now Biden is slightly favored to win the presidency, with most trackers placing the betting odds of a Biden-Harris victory at between 55% and 60%. But with several weeks to go until November 3, anything could happen. And the market hasn't yet absorbed what another four years of Trump could mean, Freeman added.
Regardless of the election, Big Tech likely still has much more room to run: Historically, the sector has shown "acceleration" on the whole whole during difficult tough economic times, he said, bolstered by big secular trends like cloud computing and digital advertising. Those trends aren't going away.
What could change for the worse, if Trump wins, is the environment that has made the United States the world leader in innovation over decades. Among other actions of the current administration, the Trump White House has shown an impulse to punish private companies for political reasons, recently calling for a boycott of Goodyear (GT) - Get Goodyear Tire & Rubber Company Report and signing two executive orders this summer targeting Twitter (TWTR) - Get Twitter, Inc. Report and Facebook.
The market has not fully appreciated the possibility of a gradual erosion of U.S. innovation -- the "move fast and break things" credo that made tech so successful -- that could arise in a second Trump term, said Freeman.
"Trump does kind of follow, if you believe what he says, less rule of law and more rule by fiat," he said. "The magnitude of the downside if Trump wins, I think will shake the foundation of contract laws, rule of law."