I feel like somewhere in my university or CFA studies I came across a theory that the semiconductor sector tends to lead the market. I can’t seem to find anything online about it. Just wondering as the semi sector is plummeting right now and cannot spell great news for the broad market, which also looks to be topping.
Links? Thoughts?
Based on the title of this thread I thought the answer would have been “Moore’s Law” which explains that, I believe, the # of cicruit designs that fit on a chip doubles every two years – the semiconductor industry goes through wild capex/investment cycles every 18-24 months that lead to wide swings in profitability for some of these companies to keep up with these technology advancements. Intel has something in the MD&A in their 10-K every year discussing these investment cycles in the semiconductor industry that is pretty good.
I don’t know about semi’s as a leading indicator, however. The investment cycle kind of runs on their own industry dynamics so there’s a chance of some head-fakes, so I’m not sure if it’s a leading indicator for business activity in North America – perhaps it is in Asia, though.
Sorry if I’m misleading you, but Moore’s Law sounds like something that may have shown up in a textbook.
“The SOX has long been considered a leading indicator, not just for technology firms but also for the market in general. Semiconductors are early cycle technology stocks and an unhealthy semiconductor sector does not bode well for economic recovery.”
http://vixandmore.blogspot.ch/2009/05/lagging-semiconductor-index-suggests.html
I think it is discussed in gwartney
Thanks for the comments and some validation. After more thought on the subject I think the indicator has shifted from the semis in particular to whole markets like the TSE and KOSPI which tend to be heavy in semi exposure but are also more export oriented highlighting changes in global trade as well as changes in general business conditions. Obviously not the best indicator as it failed completely in 2009 but with the market potentially forming a topping formation and semis and memory companies providing poor guidance and plumetting as a group, the semis and memory companies may be highlighting things to come for the broad market.