Chip Stocks: The Weakest Link in the Bull Market?
The semiconductor sector, once the driving force behind the two-year bull market, has become a significant drag on US stocks over the past four months. While the S&P 500 has seen a 3% increase since the election, chip stocks have plummeted by the same margin. This disparity raises questions about the sector’s ability to sustain the rally.
Nvidia Earnings: A Reality Check
Nvidia’s earnings report, set to release on Wednesday, will provide valuable insights into the company’s growth prospects. According to Tom Essaye, founder and president of the Sevens Report, guidance is the key element traders are looking for. “It’s all about how enthusiastic and aggressive Nvidia is on the guidance,” Essaye said. With Nvidia’s stock rising 45% since its July slump, the company needs to maintain its growth momentum to keep investors excited.
Chip Stocks Struggle to Keep Up
While Nvidia has roared back strong, its peers have struggled to keep up. Smaller chip stocks, such as Super Micro Computer, Qorvo, and Mobileye Global, have seen significant declines, with some down over 40%. Even industry giants like Intel, Micron, and Advanced Micro Devices have experienced drops of over 20%. The PHLX Semiconductor Index, which tracks chip industry stocks, has fluctuated in recent months, making technical traders nervous.
A Broadening Rally
Despite the struggles of chip stocks, the US rally has broadened in the third and fourth quarters, moving beyond the influence of semiconductors. This trend is likely to continue next year. As Josh Schafer noted, “Nvidia is not the full market driver that it was earlier [in the rally].” Tech, once the leading sector, has become the second-worst-performing sector after Healthcare, barely staying in positive territory.
Can the Bull Market Continue?
Investors are wondering if this bull market can sustain itself if tech suddenly becomes an anchor on the S&P 500. Should Nvidia underdeliver and underwhelm, investors may face a reckoning. However, Essaye is willing to overlook some of the recent weakness, citing pre-earnings jitters. With Nvidia’s momentum over the past two years, it’s hard not to be optimistic. “They’ve got a tough tightrope to walk, but they’ve done it successfully so far,” Essaye said. “I think they can do it again.”
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