[Market Outlook] Sister Semiconductor Surges and Shines!

Will This Sector Continue to Drive the Markets Higher? [Company Logo] Sister Semiconductor Surges and Shines! Will This Sector Continue to Drive the Markets Higher? By Donn Goodman March 10, 2024 [image] Welcome readers to our Weekly Market Outlook. We thank you for “tuning in,” and of course, we appreciate all the comments we keep receiving. Keep them coming. Feel free to send them to me at DonnG@MarketGaugePro.com. Let’s jump right into the update: The Economy. Last Friday morning we received the February jobs report. Job growth once again smashed expectations, but unemployment jumped to 3.9% due to recent corporate layoffs. It is interesting to note that much of the job growth is due to Government hiring and people seeking a second or even third job and being counted twice/three times. See job growth chart below: [image] The above February job report shows steady job growth along with enhanced pay gains. This is fueling investor confidence that the US economy has reached a sweet spot without much risk of a re-acceleration of inflation in the shorter term. That was the GOOD NEWS. Now the BAD NEWS: Job cuts at U.S. companies in February reached their highest level since 2009, according to the monthly layoff report from Challenger, Gray & Christmas. “Businesses are aggressively slashing costs and embracing technological innovation, actions that are significantly reshaping staffing needs,” Andrew Challenger, a labor and workplace expert at Challenger, said in the report. See chart that follows below: (We will address these “technological” advances shortly in this Outlook). [image] Employers primarily cited “restructuring” as the cause of the layoffs. An example of this can be seen in high profile tech layoffs at companies such as Google. The tech giant, and one of the vital components of the Magnificent 7 (more on this later), announced significant layoffs in January as part of their large-scale reshuffling, saying the company is shifting to “invest in our company’s biggest priorities”. A month earlier, the company launched its AI bot Gemini. We surmise that this new AI program is heavily powered by Nvidia semiconductor chips. Other big tech companies such as Microsoft, Apple, Amazon and Meta have all announced cuts this year just as they look to ramp up their AI efforts. Job cuts in tech are much lower than they were last year. In February of 2023, nearly one third of all job cuts came from tech companies. This year, other industries have begun to begin large job cuts. These industries, including manufacturing and energy, are incurring layoffs that are 1,000% more than were enacted during 2023. Below is a list of the industries and their projected job cuts for 2024: [image] This week, we also got testimony from Federal Reserve Chair Jerome Powell, who said that the Central Bank is getting close to the confidence level needed to start lowering rates. His comments reinforced the Fed’s new pivot from the chapter that began during the pandemic and was exacerbated by rising costs from Russia’s war on Ukraine. Many investors had thought the Federal Reserve would start lowering rates this month, since the current inflation is around 3% and the 10-year bond yield is over 4%. We think the inflation challenge is not done yet, as the forecasts have changed for longer periods than 1 year ahead, and inflation expectations may still pose a long-term risk to the economy. We think that this has kept the Fed in a more hawkish stance and that we will not see interest rate cuts until June or beyond. (we could be wrong). See chart below: [image] The Markets. Earlier in the week, with the continued upward movement of technology stocks, it looked as if the S&P would close for the 17th positive week in 19 weeks. But such was not the case when the market turned down on Friday afternoon led by a selloff in the afternoon. See the 21-week chart on the S&P below. [image] Nvidia, which has been on a tear (along with other semiconductor stocks - more to follow on this), had a 10% move on Friday from peak to trough. See chart from Friday below: [image] [image] However, all the major markets remain positive and healthy year-to-date. The strength of the returns since October 2023, has historically led to more gains going forward. See the S&P 500 illustration below: [image] But, as we will point out in the Technology overview below, it may be time for investors to exercise some caution. While you would probably expect to hear that the long-term movement of the S&P 500 since the Great Financial Crisis and bear market of 2008-2009 has been strong, the size of these long-term gains may surprise you. See chart below: [image] The major driver of the market. In hindsight, investors realize that there was a significant turning point when the markets trajectory went from down to up. That started in November 2022 with the realization that we were entering a period of accelerated technological development through the innovations of AI (Artificial Intelligence). Two weeks ago, we discussed in detail the Nvidia story and the impact it is having on the economy, the markets, and other tech companies. [If you missed that article or want to review it, go here](. Nvidia has not only soared to incredible heights, but it has also lifted many other semiconductor companies that are part of the industry's success or are working on their own innovation, development and strategy in the AI field. For a helpful way to understand the key economic and market trends, you can follow Mish’s Economic Modern Family, which shows how each major sector contributes to the economy. Mish explains how the market moves up or down in response to economic factors in her book “Grow Your Money Tree.” She shows how each sector (and character) of the Modern Family represents a part of the US economy and how they affect the stock market's performance, positively or negatively. [You can learn more about the Modern Family here](), and you can [get a copy of Mish’s book here](). This is how Mish describes this all important semi family member: Semiconductors (SMH) "Sister" - The semiconductor industry is on the forefront of innovation and a major player in many of the strongest technology trends. The rally that Sister Semiconductor has had since the end of 2022 has been nothing short of spectacular. Every time you think the sector is taking a breather, it turns around and rallies another few percent. On Thursday, the Philadelphia Semiconductor Index (SOX) closed more than 17% above its 50-day moving average and 36% above its 200-DMA. Regarding the 50-day moving average, it has not ever traded down to within 3% of that level in the last 80 trading days. Look at the SOX index for the last 12 months: [image] Another chart below shows the current streak of positive performance as the longest since the days coming out of Covid and just the fifth time in the index’s history since 1994. The longest streak ended at 143 trading days in August 1995. In looking at the four prior streaks, once they reached the 80-day point, the forward one-year performance of the SOX was mixed with a median gain of just 3.1% and positive returns just twice. This also could be a cautionary tale. [image] Thursday was a monumental day for the semiconductor sector because it was also the first time in its history that the index closed at a higher price than the S&P 500. It got close in 1999 but never quite got there. The rally in semis over the last few years has been nothing short of amazing, but the slope of the ascent in the ratio back in 1999 and 2000 was a straight up. The good news is this one is not. That may help the semiconductor sector to continue to go higher yet. Or, as many investors believe, we could be near a top. [image] If you are one of our subscribers who are utilizing some of our Investment Strategies, especially the NASDAQ All Stars, the ETF Sector Plus or Large Cap Leaders, you already know that we have been heavily invested in the Semiconductor area since mid-last year. Recent targets and then stops suggest to us that we could be seeing a much-needed pause or even correction in the Chips area. Please be careful. Mind your stops, use hedges like inverse ETFs, or even purchase puts or sell calls against your profitable positions as we get through the next few weeks. Can the tech rally continue? Use the links below to continue reading about: - The odds of further gains in tech - The Magnificent 7 becoming the Fabulous 4 - Gold’s new breakout - The Value in Value Stocks - The BigView bullets - Keith’s weekly video analysis - [Click here to continue as a free member](=) [Click here to continue as a PREMIUM member]() Best wishes for your trading, Donn Goodman [image] Every week we review the big picture of the market's technical condition as seen through the lens of our Big View data charts. The bullets provide a quick summary organized by conditions we see as being risk-on, risk-off, or neutral. The the video analysis dives deeper. Get started here and continue with the links below. Risk-On - Market internals [improved]() this week despite the dicy price action on Friday (+) - New High / New Low [ratio]() improved on the week, surprisingly, although sitting at lofty levels (+) - The number of stocks above [key moving averages](), despite the sloppy action, actually improved this week (+) - Small caps are [outperforming]() the S&P over the last few weeks (+) There's more... Use the links below to continue reading about: - The odds of further gains in tech - The Magnificent 7 becoming the Fabulous 4 - Gold’s new breakout - The Value in Value Stocks - The BigView bullets - Keith’s weekly video analysis - [Click here to continue to the FREE analysis and video.](=)[Click here to continue to the PREMIUM analysis and video](). Best wishes for your trading, Keith Schneider CEO MarketGauge P.S. When you’re ready, here are 3 free ways we can help you reach your trading goals… - [Book a call with our Chief Strategy Consultant](), Rob Quinn. 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