Bloomberg News reports that technology stocks are treading on flimsy grounds despite this week’s rally. The chipmakers are sending troubling signals just before that related to an industry known for its huge oscillations.
The shares of the semiconductors have been plunging amidst an array of corporate warnings related to a slowdown in demand for the chips being used in a series of electronic devices, including mobile phones.
The Philadelphia semiconductor index has plunged 11% in the last four weeks, manifesting underperformance in the 7% slide in Nasdaq 100, with Nvidia Corp hitting the 2022 lows.
The investors are worried that the slowdown in orders that have been haunting the memory chip makers might also spread to the rest of the semiconductor industry. The technology stocks in the present week are already under pressure due to a bent of the Federal Reserve related to aggressive rate hikes so that inflation could be snuffed out, notwithstanding the rebound of 4% this week of the Nasdaq 100 index.
Jason Benowitz, the senior portfolio manager, associated with Roosevelt Investment Group, has stated that there is an underlying fear that demand for the semiconductor cycle is gradually becoming negative. If the downturn gets deeper, longer, and broader, then it is quite likely that technology will start underperforming as well.
Chip Gloom
Bloomberg News reports that the selloff in mid-August is seen as a reversal since the last two months when the tech stocks were responsible for a rebound in the S&P 500 index amidst optimism that inflation might be waning. This is a scenario that the traders believe would offer a lot of flexibility for slowing down the campaign as the rate of interest increases. On August 26th, the same optimism was found being crushed when the chief of the central bank Jerome Powell pushed back against the belief that it would be reversed sooner.
Samsung Electronics Co. also added to the existing worries that in the present week following a senior executive associated with the biggest chipmaker in the world stated that it appears gloomy for the latter half of the year as far as momentum for a rebound in 2023 is concerned.
Estimates Shrinking
Analysts were found to slash the estimates of profits for the semiconductor firms more in comparison to the other sectors. As far as earnings related to the chip companies are concerned, analysts have been saying that the graph of the companies in the S&P 500 index might be flat in 2023. This is lower than what is anticipated of 12% growth over three months, as per Bloomberg Intelligence’s compilation of data. In contrast, the profits that will pour in from a broader IT sector segment are projected to be 6%, and this estimate is lower than 11% over the same duration.
