Biden’s Debate Performance Is Bearish for Tech Stocks. Here’s Why.

Following last night’s presidential debate, President Joe Biden has just a 19% chance of reelection. Betting odds show that former President Donald Trump has pulled far ahead.

Here’s where things get interesting. It appears that no sector has been more sensitive to which party has presidential power than technology. If, over the next few months, the tech sector begins to underperform, investors may already be handicapping the presidential race for a Trump win. 

When it comes to broad stock market performance, since 1926, the average annual return for the S&P 500 index is 14.78% under Democratic presidents and 9.32% under Republican presidents. That historical difference also argues that tech stocks could be laggards under Trump, especially given how large a role the tech sector currently plays in the overall market.

Leading up to November, if the tech sector starts to underperform the broader market, that might be a big sign that investors are bracing for a Trump win, and that brings with it many questions. Would a Trump administration go after tech companies under antitrust laws? Restrict access to data? Crack down on immigration, making it harder for tech companies to access talent? And what about broad economic policies? Would Trump’s economic policies lead to a more favorable climate for traditional sectors, such as manufacturing and energy, which could be investment and labor diversions for tech? 

The Bottom Line

If I’m right in singling out tech stocks here, then the poor debate performance by Biden will trigger sector rotation. In turn, that could be a bearish signal for the tech sector. It would also mean that energy and materials stocks outperform on hopes for more friendly regulatory and taxation policies under a Republican White House. 

The stock market will soon begin to anticipate who will lead the country for the next four years. It likely will do that via sector allocation more so than anything else. And if tech stocks really do weaken here, it’s the market saying that Trump wins.

On the date of publication, Michael Gayed did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.