Donald Trump and Tech Stocks Are Actually a Perfect Match

Donald Trump and tech stocks

The Dow Jones Industrial Average is trading at all-time highs, but there hasn't been a positive correlation yet between President-elect Donald Trump and tech stocks.

In fact, many of the biggest tech stocks on the market have suffered greatly since Trump was elected.

Since Nov. 9, Facebook Inc. (Nasdaq: FB), Amazon.com Inc. (Nasdaq: AMZN), and Alphabet Inc. (Nasdaq: GOOGL) are all down more than 3.5%. Netflix Inc. (Nasdaq: NFLX) has fallen more than 7%.

This has many of our readers worried.

After all, Facebook, Netflix, and Alphabet all beat expectations in their Q3 2016 earnings reports...

FANGs Fall Despite Strong Earnings After Trump Win

Facebook was only expected to report earnings per share (EPS) of $0.92 on $6.92 billion in revenue. Instead, Facebook reported $1.09 on $7.01 billion. Netflix was expected to report $0.06 on $2.28 billion, but reported $0.12 on $2.29 billion.

Alphabet reported $9.06 on $18.3 billion in revenue, beating expectations of $8.64 on $18 billion.

Amazon fell short on EPS expectations, but beat revenue expectations of $32.69 billion, reporting $32.7 billion in revenue.

So what exactly has caused the sell-off in tech stocks?

Why Tech Stocks Are Down This Week

Here's the answer: Investors are worried Trump's immigration and trade policies will lead to lower earnings for multinational tech companies.

And specifically for Amazon and Facebook, investors are worried about President-elect Trump's relationship with Amazon CEO Jeff Bezos and Facebook CEO Mark Zuckerberg.

In May, Trump told FOX News Bezos was "getting away with murder tax-wise" through his ownership of The Washington Post. Trump believes Bezos bought the newspaper in 2013 to keep Amazon's taxes low.

Trump has also been critical of Zuckerberg's immigration policies, as the Facebook CEO wants to make more H-1B visas available so tech employers can hire more foreign skilled workers, according to CNN.

But Trump viewed this as a way to keep wages low and thinks this limits the chances in Silicon Valley for black, Hispanic, and female workers.

This has caused retail and institutional investors alike to panic. And when I talked with Money Morning Director of Tech & Venture Capital Research Michael A. Robinson yesterday (Tuesday), he told me Wall Street has overreacted because that's what Wall Street does.

He believes the fundamentals are still strong for these companies.

And despite the short-term sell-off, President-elect Trump could actually help tech stocks thrive in the long run.

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These two reasons are why Trump and tech stocks could be a perfect match...

Donald Trump and Tech Stocks Make Strong Partners

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The best long-term investments are companies that provide services and make products people can't live without.

Facebook has 1.18 billion daily active users (DAUs), Amazon has over 186 million unique monthly visitors, Netflix has 86 million worldwide users, and Google owns 78% of the Internet search traffic in the United States.

So with a loyal and massive customer base, these stocks can climb even higher because of Trump's plans.

The first plan that will help the tech industry is potential job growth. If Trump is able to create more jobs and higher-paying jobs, that means people in the United States will have more disposable income.

Robinson isn't sure if we'll be able to see the affects this holiday season. But he says more disposable income paired with consumer economic confidence will be great for retailers.

With more disposable income, people can sign up for services and spend money on products they may have previously viewed as a luxury.

For example, people with new or better-paying jobs may feel more comfortable signing up for Amazon's Prime services. Through Facebook's Messenger app, users can browse for clothes, purchase plane tickets, and book hotels.

With more money, people may feel financially secure enough to buy a Netflix subscription. If they already have a subscription, they may pay for a higher subscription for more options.

And workers with new or better-paying jobs may start splurging on products like Google's VR headset, Daydream View.

The second reason Trump could be good for tech stocks has to do with his plan to cut the corporate tax rate.

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According to DonaldJTrump.com, the corporate tax rate will be lowered from 35% to 15%. Because of the high tax rate, U.S. businesses are hoarding their money overseas.

According to CNN, 72% of the cash held by U.S. companies in 2015 was overseas.

This means U.S. companies aren't using the money to invest in projects, buildings and facilities, or hiring. Instead, they are stashing it overseas to avoid taxes. But with a more favorable tax treatment, U.S. companies can keep money in the country and use it to grow.

Apple Inc. (Nasdaq: AAPL), for example, could use the $200 billion it had overseas in 2015 to invest more in its electric car and live TV initiatives.

That means more work for construction companies to build facilities for these projects, new jobs for programmers and engineers, and more money for Apple by creating new products faster and more efficiently.

While tech stocks may be volatile now, FANG stocks are still some of the best to own for long-term growth.

The Bottom Line: Right now, it appears Donald Trump and tech stocks aren't a good pairing. But because Trump may be able to create new and higher-paying jobs and cut the corporate tax rate, tech stocks can thrive. Higher-paying jobs mean more people can pay for the services and products from tech companies, and tax breaks mean tech companies can keep money in the United States and use it to invest in new projects and products.

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