Preamble
The Semi Equipment sector gave the signal in January 2013 that manufacturing was likely to sure up and then, the economy and employment. Hence, it makes sense to continue watching the Semi’s for clues about the economy going forward.
Now, we have seen myriad signs of economic deceleration. Much of this has been due to declining exports and durable goods orders, which are likely related to the strong dollar. Given the big picture theme of ongoing global economic contraction, I am more than willing to accept the ‘slowing economy’ scenario.
But there is another possibility and that would be that a US dollar correction or consolidation could coincide with relief to certain economic signals that have been under pressure. Along those lines, we review once again another strong Semiconductor B2B report just published at SEMI.
Semi B2B
Again, what is relevant here is not the billings, which declined a bit, but the bookings, which are the forward looking component. This is another very good report and a positive for the economic outlook (if the Semis are to retain the status as Canary in the Coal Mine).
Obviously, this message is antithetical to the preferred backdrop for the gold sector. In that regard, please review Steve Saville’s post about what gold is, and is not a play on. I agree 100%, obviously, as he states our usual themes very well.
Also, another post you might find interesting shows the JNK junk bond fund in a bullish looking stance. Junk bonds are one of our indicators of the will to speculate in asset markets. As of now, that will is intact.
Bottom Line
Nobody knows what will happen in any of these markets. But certain tools and indicators help give us intelligence when trying to ascertain probabilities. One thing we can say with certainty is that the Semiconductor Equipment industry was still strong in March.
Certain equipment charts have dropped (ref. AMAT, MKSI, etc.) and yet LRCX had a good earnings report and popped hard from a similar depressed state. The B2B implies that other equipment makers have a shot at surprising Wall Street as well.
As for the macro message, we were on the ‘USD strength brings exports and capital goods weakness’ play since Q4 2014. Now, I am not so sure of that play and if the B2B remains a harbinger, some positive economic surprises could lay ahead.
Let’s see how it all shakes out.
