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LGT Navigator: Sector rotation puts technology stocks under pressure

November 11, 2020

Profit-taking by large technology stocks and a sector rotation towards the previous losers of the Corona crisis caused the shares of Amazon, Facebook or Microsoft to collapse. Meanwhile, the Trump administration is trying to challenge the lost presidential election and influence the situation with legal actions in various states. In view of Biden's clear lead, it will be extremely difficult for Trump to influence the result significantly. 

Technology stocks show weakness

On the New York Stock Exchange, tech giants like Amazon (-3.7%), Facebook (-2.8%) and Microsoft (-3.6%) suffered from profit-taking. The Nasdaq 100 fell by -1.74% to 11 624.29 points. The euphoria surrounding the Covid-19 vaccine from Pfizer and BioNTech, which was successful in tests, caused a rotation in the sectors away from defensive stocks and towards cyclical stocks, i.e. companies whose business is more dependent on economic growth. Meanwhile, the Dow Jones Industrial (+0.9%, 29 420.92 points) and the broad S&P 500 (-0.14%, 3 545.53 points) held steady at record levels. In the US today, bond markets remain closed due to “Veterans Day“, while stock markets remain open.

In Asia, the fundamentally positive mood continued and most indices recorded daily gains. The Nikkei index, which comprises 225 stocks, rose by +1.78% to 25 349.60 points. Meanwhile, Chinese technology stocks also suffered from the losses of their American competitors. The shares of Alibaba and Tencent lost just under -9% and about -5%, respectively. For the European stock exchanges, the futures market signaled slight losses at the start of trading.

Trump refuses to admit defeat and clings to power

Acting US President Donald Trump and his campaign team yesterday filed a lawsuit with the Federal Court in Pennsylvania against the vote count, alleging irregularities. Trump is again attacking the postal vote. The postal ballot in Pennsylvania does not have the necessary transparency and verifiability as is the case with voting at the polling station, according to Trump. This two-tier electoral system, the President says, “results in potentially fraudulent votes being counted without proper verification or control“. With this, Trump is still trying to obtain an injunction. After Biden's victory, Trump's campaign team had filed numerous lawsuits for alleged election irregularities, but in the states of Michigan and Georgia the applications have already been dismissed by the relevant judges.

Meanwhile, according to media reports, the Democrats have again secured a majority in the House of Representatives with at least 218 seats. Until the certified final result, the Democrats may be able to expand this majority, but overall they may have a smaller majority than before. In the Senate, however, the decision is still pending. So far, the Republicans have had a majority of 53 of the 100 seats. In the event of a stalemate, Vice President Harris would have the deciding vote. However, if the Republicans were to defend control in the Senate, they could massively obstruct or block Biden's policies.

EU leaders hope for a new start with Biden's administration

EU Commission President Ursula von der Leyen hopes that the election victory of Democrat Joe Biden in the US will lead to a comprehensive restart of relations. According to von der Leyen, an attempt is to be made to find a consensus with the Americans on all important issues ­ from security policy and sustainability to the rules for technology, data protection and global competitive conditions. The EU Commission currently sees the joint fight against the corona pandemic and climate protection as priorities.

ZEW economic sentiment indicator collapses again

The financial experts and institutional investors surveyed by the Mannheim-based Centre for European Economic Research (ZEW) on a monthly basis were again significantly more pessimistic in the current survey. Against the backdrop of the second wave of the pandemic, the economic outlook for the eurozone is assessed more negatively. The most frequently observed expectation indicator fell by -17.1 points to 39.0 points, marking the second consecutive decline. According to the ZEW, the euphoria of the summer months has evaporated and the data point to a significant slowdown in the economic recovery process.



Economic Indicators November 12

MEZ Country Indicator Last
08:00 GE Consumer Prices (October, y/y) -0.5%
08:00 UK Industrial Production (September, y/y) -6.4%
11:00 EZ Industrial Production (September, y/y) -7.2%
14:30 US Consumer Prices (October, y/y) +1.4%
14:30 US Core Consumer Prices (October, y/y) +1.7%

Earnings Calendar November 11

Country Corporate Period
SZ Barry Callebaut Y
GE Continental Q3


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