Will Semiconductors Have Fun in the Sun This Summer?
Semis have fun in the sun
Often tech takes the most heat for wilting in the summer. But according to the historical data, it simply is not true for semiconductors. Granted they do underperform their own high returns for the year; however, over the summer they do very well with a 1.12% monthly average return, an impressive outperformance compared to the S&P 500’s slightly negative return. See the chart below:1
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Nothing is a sure thing, but with a solid trend of outperformance in place and summer seasonality actually behind you, SOXL should remain interesting to investors, at least once June passes.2
Do Trump policies concern the semiconductor sector?
The historical figures above show that semiconductors have outperformed during summer months, returning 1.1% on average. However, there’s no guarantee that history will repeat itself, considering the uncertainty along with Donald Trump’s victory. Even though President Trump hasn’t particularly talked about any policies related to the semiconductors industry, his restriction on trade barriers with China might pose a threat to the sector. China is a key market for the global semiconductor industry. According to consultancy Bain & Co, China consumes more than $100 billion worth of semiconductors, which is roughly one-third of the world production.
Major semiconductor companies like Qualcomm (QCOM), Apple (AAPL), Applied Materials (AMAT), Intel (INTC), and NVIDIA (NVDA) earn a significant amount of revenue from China. Thus trade restrictions with China will hamper these companies’ earnings drastically.
The semiconductors industry, however, is doing quite well on the back of strong earnings and growth outlook from companies like Intel, NVIDIA (NVDA), and Texas Instruments (TXN). The semiconductor sector (XSD) has gained 14% since elections as of May 8, 2017. The Direxion Daily Semiconductors Bull 3X ETF (SOXL) is a good choice in the leveraged ETF category with a 68% rise since elections.