How the chip trade has come to resemble silver - a warning from Morgan Stanley's Wilson

By Jamie Chisholm

Veteran Wall Street strategist Mike Wilson weighs possibility that semiconductors are merely 'the latest commodity to boom this year'

Shares of Intel - whose CEO, Lip-Bu Tan, is shown speaking earlier this month in Taipei - are just one of the semiconductor plays that have retreated from recent highs.

The Nasdaq Composite COMP has just registered a five-day losing streak, its longest such retreat since the start of the year, shedding 4.6% of its value in the process.

The tech-heavy index's fall is more than double that of the broader S&P 500 SPX over the same period, and that speaks to two things: caution over the artificial-intelligence trade and a broadening of the market as investors shift funds into sectors deemed more economy-sensitive.

Many investors in recent years have benefited handsomely from buying such a tech dip. But they may need to be much more selective this time, according to a team of strategists at Morgan Stanley led by Mike Wilson.

That's partly because he thinks the broadening trade has further to run, "driven by an underappreciated recovery in earnings across the market."

He favors discretionary goods, transports and regional banks, amid falling oil prices and the likelihood that the Federal Reserve will be less hawkish than the market currently thinks.

But another concern for Wilson is that recent volatility in semiconductors "is making historically high exposure levels in the space harder to maintain."

As an illustration of that volatility, the PHLX Semiconductor Index SOX lost 7.9% last week, having jumped 7.3% the week before that.

Wilson points to weakness in shares of hyperscalers of late and heightened earnings optimism as headwinds for the semiconductor group.

"In our view, this rotation away from the hyperscalers may be a leading indication that semis (key spending beneficiaries [of hyperscalers]) could now see a period of underperformance as earnings per share revisions breadth for the space comes up against historical extremes," says Wilson.

And he also sees semis as possibly "the latest commodity to boom this year," drawing what for bulls may be a worrying comparison to the performance of silver stocks - though with a four-month lag.

"If the broadening out is making a sustainable comeback, this price momentum in semis stocks likely needs to reach a climax, and it appears that may be happening, on schedule," Wilson says.

"This doesn't mean the cycle [for semiconductors] is over ... though a lack of price momentum in the space for now is likely to give other areas of the market room to outperform as relative tailwinds drive groups like discretionary and transports," he concludes.

The markets

U.S. stock-indices SPX DJIA COMP are higher at the opening bell on Wall Street as Treasury yields BX:TMUBMUSD10Y rise. The dollar index DXY is a tad lower, as oil futures (CL.1) climb and gold futures (GC00) trade around $4,060 an ounce.

 
Key asset performance                                                Last       5d      1m       YTD     1y 
S&P 500                                                              7354.02    -1.95%  -2.98%   7.43%   19.13% 
Nasdaq Composite                                                     25,297.62  -4.60%  -6.21%   8.84%   24.78% 
10-year Treasury                                                     4.391      -12.50  -6.20    21.90   16.30 
Gold                                                                 4053.5     -3.71%  -10.22%  -6.43%  22.28% 
Oil                                                                  70.42      -4.94%  -23.85%  22.66%  8.39% 
Data: MarketWatch. Treasury yields change expressed in basis points 

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The buzz

The U.S. and Iran reportedly agreed to halt attacks after repeatedly exchanging fire in the Persian Gulf over the weekend.

Apple (AAPL) is lobbying the Trump administration for clearance to buy memory chips from a blacklisted Chinese company, according to the Financial Times.

Shares in Comcast (CMCSA) are up about 20% after the media group said it would spin off NBCUniversal and Sky as separate companies.

Samsung Electronics (KR:005930) and SK Hynix (KR:000660) will invest more than $500 billion to expand memory-chip production.

A holiday-shortened week - Independence Day is on Friday - will see the nonfarm-payrolls report brought forward to Thursday, while the earnings highlight is likely to be from Nike (NKE) after Tuesday's market close.

Warsh has begun to change the Fed.

The chart

Source: Miller Tabak

The swift pullback in the price of West Texas Intermediate crude (CL.1) has pushed it to oversold levels, according to Matt Maley, chief market strategist at Miller Tabak. The "over-hated commodity should be due for some sort of bounce soon," he says. Any rebound in oil prices may increase concerns about inflation which may hit Treasury prices and raise yields, Maley thinks. "So, like equity investors today, fixed income investors will want to stay very nimble in the days and weeks ahead."

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

 
Ticker  Security name 
SPCX    Space Exploration Technologies 
NVDA    Nvidia 
MU      Micron Technology 
TSLA    Tesla 
MSFT    Microsoft 
GME     GameStop 
TSM     Taiwan Semiconductor Manufacturing 
AMD     Advanced Micro Devices 
AAPL    Apple 
PLTR    Palantir Technologies 

30-something BBC reporter takes on 98-year-old at pushups.

-Jamie Chisholm

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(END) Dow Jones Newswires

06-29-26 0930ET