Chips are not yet on this strategist’s list

The chips are very hot now. But not for the best reasons. US House of Representatives Leader Nancy Pelosi’s visit to Taiwan has angered the Chinese Communist Party, and some observers are concerned about the possibility of retaliation.

China and Taiwan jointly source half of the semiconductor chips the world consumes, and nearly all of the latest high-tech chips. If China stops Taiwan trade, the loss of chip supply will cripple manufacturing and technology infrastructure around the world,” says Karl Weinberg, chief economist at High Frequency Economics.

No wonder there was enough bipartisan support in Washington last month to pass the Chips and Science Act, designed to boost US semiconductor production.

Even setting geopolitical problems aside, the sector faces headwinds, estimates Wells Fargo analyst Amit Chanda.

“As the US Federal Reserve aggressively raises interest rates to combat inflation, ultimately slowing economic growth, we believe the risks have increased for weak demand to spread from low-quality consumer personal computers and low-cost smartphones to other semiconductor end markets within the Chanda in a note: “The tech economy sometime later this year or early next year.”

Source: Wells Fargo

The demand given is currently fairly strong in the pockets, particularly in the cloud computing and data center sectors. But Chanda believes that relatively high levels of inventory, combined with slower growth of semiconductor sales with weak economic activity, are raising the risks of an “inventory-led correction of the semiconductor industry”.

He notes that evidence for this emerged recently when the largest semiconductor foundry in Taiwan predicted the inventory rectification cycle from the second half of 2022 through the first half of 2023.

Clearly, the market anticipated some of these problems. PHLX Semiconductor SOX Indicator,
-0.07%
It traded 26 times the next twelve-month (NTM) earnings forecast at the start of the year. Having fallen 22.6% so far in 2022, the multiplier is now down to about 16 NTM earnings.

Source: FactSet

But Chanda cautions that until the downturn is properly reflected in earnings expectations, investors will remain cautious.

“Despite the downturn in multiples, most institutional investors still expect sell-side analysts to cut their agreed EPS estimates in the 15%-20% range before they feel comfortable revisiting semiconductor stocks.”

markets

Cautious tone for markets see S&P 500 ES00 futures contract,
-0.16%
It rose only 0.1% to 4,159 and Nasdaq 100 futures contract NQ00,
-0.21%
Adding 0.1% to 13,278. DXY Dollar Index,
-0.39%
It fell 0.3% to 106.19 as the 10-year Treasury yield fell TMUBMUSD10Y,
2.676%
It fell 2.4 basis points to 2.729%. WTI CL.1 futures contract,
-1.94%
It rose 0.6% to $91.21 a barrel and gold GC00,
+ 1.51%
It advanced 1.1% to $1,795 an ounce.

commotion

Stocks in Lucid Group LCID,
-10.02%
It is down 12.7% in pre-market trading after the electric car maker cut its production guidance for the year.

Bitcoin BTCUSD,
-1.99%
It fell 2.2% to $22,800 after news of another crypto theft.

British Pound GBPUSD,
-0.26%
It fell 0.6% to $1.2075 after the Bank of England raised borrowing costs by 50 basis points to 1.75% and warned that inflation at a 40-year high would push the UK into a prolonged recession.

Thursday’s earnings reports include Nicholas NKLA,
+ 5.74%And the
conoco cup,
-0.30%And the
Warner Bros. WBD,
+ 0.96%
and Paramount Para,
-0.36%
Before the market opened, and Lyft LYFT,
+ 2.15%And the
AMC AMC,
+ 2.53%And the
Zillow Z,
-1.28%
imminent shack shack,
-8.55%
After the closing bell.

Thursday’s US economic reports include Initial Jobless Claims and Trade Balance data for June, both at 8.30AM ET.

In rare good news for the European air travel sector, Lufthansa LHA,
+ 6.22%
It said it expects ticket demand to continue to rise, sending shares in the German carrier up 4%.

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graph

The S&P Dow Jones Indices just launched a series of freight indices that track the monthly and quarterly forward freight agreements of the Baltic Exchange, the major freight derivatives. The sharp rise in freight rates caused by COVID-related disruptions can be clearly seen. The good news for consumers suffering from inflation is that prices are falling significantly.

Source: S&P Dow Jones Indices

The most important indicators

Here are the most active stock market indicators on MarketWatch as of 6 AM ET.

ribbon

Safety name

AMC,
+ 2.53%

AMC Entertainment

TSLA,
-0.36%

Tesla

GME,
+ 1.21%

Jim Stop

AAPL,
-0.81%

apple

XELA,
+ 13.01%

Excel تقنيات Technologies

AMTD,
-28.29%

AMTD IDEA group

NIO,
+ 2.68%

NIO

Baba ,
+ 1.31%

Ali Baba

AMZN,
+ 0.72%

Amazon

hkd,
-27.77%

AMTD Digital

random readings

Tesla engine flying car

frankenstein pigs

The wind stirs the flames

3D giant tokyo dog

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