Goldman Sachs says stocks are not pricing in these two risks

Equity markets appeared to disregard the potential risks associated with antitrust lawsuits targeting some of the largest technology companies in the United States, Goldman Sachs said in a report released on Friday afternoon.

Despite ongoing legal challenges and increased regulatory scrutiny, the valuation of these "Big Tech" firms has not shown significant sensitivity to such risks, the bank said.

The Department of Justice (DoJ) and the Federal Trade Commission (FTC) have been active in filing lawsuits against technology giants such as Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL), and Meta Platforms (NASDAQ:META), alleging anticompetitive behavior.

The federal government's focus on antitrust issues was highlighted on July 9, 2021, when President Biden issued an Executive Order to encourage regulators to take a stronger stance on antitrust policy.

Despite these developments, the impact on the share prices of the companies in question has been minimal. On the days when lawsuits were announced, targeted stocks experienced a lag in performance, but this did not translate into a lasting effect on their valuations. 

Another risk that is not currently priced in, according to Goldman Sachs, is the potential impact of the upcoming US presidential elections. 

Recent polls showed that President Biden and former President Trump are closely matched.

Goldman Sachs says its discussions with clients have centered on identifying stocks that might gain or lose based on the policy changes each candidate would likely implement.

Despite the interest in strategizing for post-election market scenarios, most equity investors consider it premature to adjust their portfolios for the potential election results.

Goldman Sachs also emphasized the importance of the election's timing, drawing attention to historical precedents where the declaration of the winner was delayed.

With the presidential election set for November 5, the firm's economists are closely monitoring the 'tipping point' state polling, which could be crucial in determining the election's outcome.

President Biden is currently trailing in this key state by 2 percentage points and by an average of 4 percentage points across seven swing states.

All in all, Goldman Sachs noted that the volatility market has not yet priced in the risk of a prolonged election outcome.