When Trump announced he was running for the US presidency, no one expected he’d get far, myself included. Yet he actually did it. He is the 45th president of the United States.
On Wednesday, 9 November, I was glued to various screens. Some showed the latest poll results. Others showed investor reactions. I’m sure you recall that, as Trump edged ahead of Hillary in the afternoon (Melbourne time), global markets went nuts. The ASX 200 fell 4.8%, to 5052.6 points.
A Trump victory meant a falling market, or so we’d been told by mainstream analysts across the board. And investors initially reacted by selling stocks.
But as the idea of President Trump became more of a possibility, shares edged back up. The next morning, with the outcome now official, the ASX 200 screamed up 3.22%, to 5328.8 points. Why such a shift in investor sentiment? Well, there are a few factors. But a major driver is that Donald’s victory actually took uncertainty out of the market.
It may not seem that way at first. But investors were on edge for the last 18 months. And that edge only got sharper when the long list of candidates was at last whittled down to the final two.
Once the decision was final, the build-up evaporated. Not only that, Trump’s victory speech was more or less sensible, hinting that he would settle down and get to work.
But not all stocks received the ‘Trump bump’. In the US, the Dow Jones was up, but the NASDAQ fell.
As Bloomberg explains:
‘The election of Donald Trump has been stock market manna for every industry that benefits from an expanding economy but one: technology.
‘Losses among computer and software makers mushroomed Thursday and were pronounced in the FANG block of Facebook Inc., Amazon.com Inc., Netflix Inc. and Google parent Alphabet Inc., each of which fell at least 1.9 percent. The Nasdaq 100 Index slumped 1.6 percent at 4 p.m. in New York, the biggest retreat since 9 September.’
Fortunately, the same didn’t happen to Aussie tech stocks. The ASX 200 Information Technology Index (ASX 200 Info Tech) traded up 7%, to 790.6 points, on 10 November. This index includes companies who predominately work with software, technology hardware and equipment, and semiconductors.
The NASDAQ 100 has recovered since its initial drop, climbing to around 4808 points. But if Trump stirs up trouble for US tech stocks, it will likely have an impact on Aussie tech stocks as well.
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A real estate tycoon affecting the Valley
Throughout Trump’s campaign, technology wasn’t a topic of much discussion. Trump won on big ideas and a promise of change.
One his main ideas involves immigration. Trump hates the H-1B visas employment policy. These visas are often used to bring scientists and engineers into the US. Trump attacked the policy behind H-1Bs during his campaign. He called guest workers cheap substitutes for American labour.
As Trump sees it:
‘We graduate two times more Americans with STEM (Science, Technology, Engineering and Mathematics) degrees each year than find STEM jobs, yet as much as two-thirds of entry-level hiring for IT jobs is accomplished through the H1B program.’
His views on H-1B might not explicitly affect tech stocks, but it could have a spill over effect. It could force tech companies relying on outside expertise to look for domestic workers. The bottom line is that it could increase costs and time spent looking for suitable employees.
Trump’s ideas for trade could also put many tech companies in hot water. Trump is not a big fan of China. In a campaign speech, Trump said ‘I will use every lawful presidential power to remedy trade disputes, including the applications of tariffs.’
According to ZDNet, Trump might even slap a 45% tariff on Chinese goods and a 35% tax on Mexican imports. Those countries would likely retaliate, and a trade war would ensue. This would be horrible news for companies like Apple Inc. [NASDAQ:APPL] and others who rely on Chinese manufacturing.
As for a specific stance on technology, Trump has no current plans for NASA. He has no position on promoting US federal research. He also has no policies on technology transfer, which is the transfer of tech from originators to secondary users. As an example, developing countries use and benefit from technology created elsewhere. Trump also has no policies on start-ups and small business support or patent reforms.
Yet despite all of his shortcomings and lack of focus on the tech industry, his entrepreneurial spirit might be exactly what the tech industry needs — for now. It was enough to put one of the biggest names in tech industry on his side.
Making technology great again
Throughout his campaign, there weren’t many tech giants supporting Trump. According to CNBC, ‘The tech industries A-list gathered at the Web Summit, digesting the outcome of his shock victory. On the Wednesday, the mood was sombre, a far cry from the energy that raced through the conference on the previous day.’
‘It’s like a funeral,’ one attendee told CNBC. It’s fair to say much of the tech industry was backing Hillary to win. But Peter Thiel was not one of them.
If you don’t know Peter Thiel, his resume is extensive.
He co-founded PayPal Holdings Inc. [NASDAQ:PYPAL]. And he’s the bestselling author of Zero to One. After selling PayPal, Thiel founded Palantir Technologies, a private software and services company specialising in big data.
He co-founded Founders Fund, a venture capital firm with US$2 billion in assets under management. And he was the earliest outside investor in Facebook Inc. [NASDAQ:FB], once owning 10.2%.
Thiel has a reputation of being a contrarian. However, I believe innovation and entrepreneurship is exactly why he backed Trump.
‘I think it’s because of the big things Trump gets right. For example, free trade has not worked out for all of America. It helps Trump that the other side just doesn’t get it. In actual practice we’ve lost tens of thousands factories and millions of jobs to foreign trade, the heart land has been devastated,’ Thiel said at the National Press Club.
Make no mistake. Trump is in a position to make disastrous decisions for the US tech industry; decisions that could easily trickle across to impact the Aussie sector. But he might also promote innovation, small businesses and jobs, which would likely benefit many tech companies.
As to which direction he goes, we’ll just have to wait and see.
Junior Analyst, Money Morning
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