Google Stock: Why Is Google Tumbling on Trump’s Presidency?

Google StockGoogle Stock Could Face a Backlash with Trump: Here’s Why

Trump has won. He is the White House’s new tenant. His references have been checked and he’s ready to move in for the period 2017-2020. He might even stay longer. But his arrival will have major effects the financial markets. Alphabet Inc (NASDAQ:GOOG), otherwise known as Google, has already gotten a whiff of how the markets perceive Google stock in a Trump presidency. The bears appear to have come out for Google. Should you follow them?

How to better anticipate and capitalize on investments that will come out? The outcome of the duel between Hillary Clinton and Donald Trump will have strong and lasting effects on financial markets and stock exchanges. But, Google stock could suffer in the next few months—especially as Trump represents an unknown entity. Certainly, Google did not hide its support for Hillary Clinton.

GOOG stock could suffer if Trump follows up on his campaign promises. Just as Google and its Silicon Valley neighbors have noticed in Europe, Trump could enforce a tighter fiscal policy. Now, with Europe becoming less malleable, Google and the like might be forced to pay more taxes. Certainly, many Trump voters—and even those who voted for Clinton—might appreciate such a step.

Google Stock Faces Risks from Trump if He Follows Through on Fiscal Reforms

During the election campaign, the clear majority of Silicon Valley supported Hillary Clinton (with the notable exception of PayPal Holdings Inc (NASDAQ:PYPL) co-founder Peter Thiel). Companies like Google offered words of support and possibly financial donations. But there’s another less evident factor. Trump wants to “make America great again.” He will be inclined to block the tap of human resources that has fueled innovation in Silicon Valley. At least that’s what could happen if he manages to pass his immigration reform—read: immigration cuts.

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But there’s one major general consideration that weakens Google stock. It has little to do with its actual potential. The business case remains as bullish as ever. Now, however, Google and other so-called “Websoft” companies—Silicon Valley tech firms—could face a backlash. Google’s business model hints at why Donald Trump won the 2016 election so convincingly and unpredictably.

The major Silicon Valley firms have more than doubled, even tripled, their revenues in the past seven years. But, they’ve not spread the wealth, neither in taxes nor employment. Their contribution to U.S. job growth is minimal.

Google Stock Has Benefited from Rules Trump Might Change

A European investment bank, Mediobanca Group (BIT:MB), has proven this in a study (Here’s the original source in Italian). Mediobanca shows that Websoft companies like Google, which have enjoyed virtually galactic market cap increases—with matching management salaries—have only increased their labor force by 1.2 times in recent years. This is while the same companies tripled their share prices.

Therefore, Google, which is now worth $483.0 billion, could be subject to a backlash. Under the Clinton, Bush, and Obama years, the mantra was that “the rich are the engine of the economy and make the decisions that affect them.” (Source: “What the Boom Forgot,” The New Republic, May 3, 2004.)

This is what led to dismantling the Glass-Steagall Act system, which regulated financial assets since Franklin Delano Roosevelt’s “New Deal.”

That wall was torn down, leaving free rein to speculation. Major crises that followed are the result of that choice. Donald Trump’s voters were those who felt the most repercussions from the market—responsible for the huge Silicon Valley valuations. They will demand changes and if Trump wants to be re-elected, he must deliver.

The specter of higher taxes on Silicon Valley, therefore, casts a shadow over GOOG stock’s potential in 2017. That aside, Google is as strong as ever when viewed in the context of its industry and future.