US stock market sell-off in the fourth quarter

The US stock market, especially the tech sector, reported a sell-off in the fourth quarter due to the prolonged partial government shutdown, the weak earnings forecast from US-based companies, and uncertainty created by the US-China (FXI) trade war. According to Reuters, analysts reduced their fourth-quarter YoY (year-over-year) earnings growth estimate for S&P 500 companies from 20.1% estimated in October to 14.2%.

Semiconductor Stocks Rally Due to US-China Trade Optimism

Many companies were impacted by the slowing economic demand due to the US-China trade war. For the December quarter, Apple (AAPL) lowered its revenue estimate. NVIDIA (NVDA) and Texas Instruments reported weak guidance. Companies outside the US were also impacted. Taiwan-based TSMC (TSM) reported its steepest revenue decline for the March 2019 quarter.

US-China trade talks

The US-China trade talks have started as the March 1 deadline gets closer. After the deadline, the US will raise the tariffs on $200 worth of Chinese imports from 10% to 25%. Higher tariffs could pull down the tech sector, which depends on China to manufacture and sell goods.

Stocks react to trade optimism

Amid the weak business and macroeconomic environment, trade talks between the United States and China showed signs of optimism. On January 18, a Bloomberg report stated that China has proposed boosting its imports from the US to reduce the trade deficit.

On January 17, a report from the Wall Street Journal cited rumors that US Treasury Secretary Steven Mnuchin is considering removing US tariffs on Chinese imports. Although the report was denied by a Treasury spokesperson the next day, the US stock market rallied. The market was driven more by investors’ sentiment than logic.

On January 18, the S&P 500 (SPY) rose 1.32% due to a 1.5% increase in the tech stocks listed in the index. The VanEck Vectors Semiconductor ETF (SMH) rose 2.47% due to a 5.6% rise in Micron Technology (MU) and a 3.4% rise in NVIDIA (NVDA). Although the stock market rallied, the relative trading volume was low, which indicates that some investors are waiting for earnings releases.

In this series, we’ll analyze the US-China trade talks. We’ll see how the trade talks could impact the semiconductor industry.

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