October 7, 2020
Yesterday’s House antitrust announcement aimed at GOOGL, AMZN, FB and AAPL (consumer focused) has been in the works for more than a year and expected. The government feels these businesses are monopolies and wield too much power around distribution, market power and pricing. The suggested reforms from the sub-committee sound severe including: 1) structural separation or break ups; 2) prohibiting the self-preferencing in products; 3) limiting M&A and; 4) data portability. But it’s a very long road to translate any of this into law and the ultimate reforms (years out) are expected to be less severe than what was suggested yesterday. The highly anticipated announcement didn’t dent investor enthusiasm for these companies over the summer and isn’t a major reason for the relative underperformance in the NDX since September 3. The NDX began underperforming the S&P 500 Value Index (SVX) when post-Labor Day market attention focused on the upcoming November elections. The market is pricing-in the probability of increased fiscal spending and associated higher bonds yields that could result from a Democrat sweep on 11/3. Value sectors should continue to draw support in the run-up to the elections. Fiscal relief in the ~$1.5-$2T range as a bridge to economic stability is seen as an equity friendly event. But a perception of increased budget deficits based on higher tax rates, slower growth and increased spending could quickly become a headwind.