Semi Sector Leads, Laggards Lag

The graphic shows you that the media have now, months later, caught up to the story.

As we have been noting all year, Semi leads and Semi Equipment and Materials tend to lead Semi before economic cycles turn. Here are 3 charts, AMAT/SOX, ASML/SOX and CCMP/SOX all in leadership mode.




A fundamental source of my constructive view of Semi last posted on October 21st. The view continues to be very cautiously optimistic for 2020. As you can see by this measure, things are in the early stages. Normally I would discount such a blip but since it comes amid the raging trade war with China, which most certainly has impaired the Semi industry to some degree, it’s at least notable. What will it do when Trump terminates the trade war in favor of election?

semiconductor equipment

So the front end of our market leadership chain (SOX/NDX) has been leading firmly. Charts are a lot of things and chartists can portray a lot of things through bias and hubris, but the fact is that since Q4 2018 the leader of SPX’s leader has been leading. You see?

sox ndx

But now we move on to some negative things in the media.

3 charts, one bear

In this article another of those rock star analysts the media love to highlight is bearish.

“All the economic risks remain tilted to the downside,” Rosenberg said. “It seems lost on many people that the Atlanta Fed GDP forecast is down to 1.0% real GDP growth for Q4 and the NY Fed forecast is for a mere 0.7% at an annual rate. Yet the narrative remains how strong the U.S. economy is. Surreal. This is a stall-speed economy now with 30% of GDP in a recession.”

He provides charts of waning global growth, waning small business wage gains and declining inflation as evidence that the whole economic souffle’ is falling.

As David Rosenberg, chief economist for wealth manager Gluskin Sheff, put it, “what investors need most right now is a detective, not a cheerleader.”

So our detective searches for negative readings on some pretty obvious and lagging indicators. But I don’t see any caveat in his work about 2019’s leadership by a segment that is a cyclical economic leader. Hmmm…

Now, as implied by the Semi Equipment graph above, Semi could be a blip. But folks, it is a leader and if it is real those leaning heavily on negative economic sentiment could be caught leaning on the wrong foot. 2020 is going to be interesting. Especially when Trump makes nice with China in the run up to the election.

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