Trump’s crackdown on Big Tech is misguided

(CNN) — President Trump loves to boast about how well the stock market has done during his tenure. That makes his recent threats to rein in big tech and social media firms all the more puzzling.

Trump’s fury over being fact checked by Twitter about claims of election fraud with mail-in ballots has led him to threaten to issue an executive order that cracks down on social media companies — the very firms that have been posting strong gains on Wall Street.

Twitter shares have pulled back in recent days but are still up slightly for the year. Facebook and YouTube owner Alphabet are in the green for 2020, too. Shares of Snapchat’s parent company are higher as well.

The tech sector, including Microsoft and FAANG stocks Apple, Amazon and Netflix, has enjoyed a strong rebound from the coronavirus-induced market lows. The Nasdaq is up more than 40% since March 23 and is now only about 4% from its record high of 9,838.37 on February 19.

Which makes Trump’s continued war against Big Tech all the more mystifying.

The tech sector and social media had been one of the primary engines of jobs growth in America since Trump took office before the Covid-19 pandemic upended the labor market and economy.

Any crackdown on Big Tech firms has the potential to lead to even more job losses and could hamper their ability to keep churning out strong profit growth.

Techs helped prop up market and economy before Covid-19
“This crisis has accelerated the digital transformation that businesses and consumers are undertaking,” said Brad Neuman, director of market strategy for fund manager Alger in a report last week.

“From e-commerce to cloud computing and telemedicine to genetic testing and manipulation, the trends that have been in place have only been supported by the pandemic,” Neuman added.

Sure, there are some legitimate antitrust concerns about several tech giants given the number of big acquisitions made by Facebook, Google and Amazon in recent years. And there is rare bipartisan support in Washington for tougher regulations to rein in the FAANGs.

But Tony Bedikian, head of global markets with Citizens Bank, said that tech and social media giants are likely to be at the forefront of a new working-from-home normal.

So the last thing that Trump should want is to propose a major overhaul of how tech companies operate that could lead to a massive plunge in their stocks, especially since the top five tech firms — Microsoft, Apple, Amazon, Alphabet and Facebook — make up more than 20% of the S&P 500’s market value.

That means that any investor who owns a passively managed index fund is, like it or not, making a huge bet on the FAANGs. It will be difficult, if not impossible, for the overall market to keep rallying if tech stocks are lagging.