Nasdaq Futures Sink 2% As Investors Brace For Possible Blue Wave

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. [US/]

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.