The stock market's semi-charmed life: Morning Brief

The stock market has surged to record highs, and the names doing most of the work to get us there are coming from one industry: semiconductors.

In a note to clients Wednesday morning, the team at Bespoke Investment Group noted the recent rally in semis is “one of the most epic runs in history.”

Through Tuesday’s close, the firm noted that names Seagate (STX), Micron (MU), and Intel (INTC) were each up more than 25% over the last week. AMD (AMD) stock through Tuesday’s close was up a more modest 9.9%; then the stock soared over 18% on Wednesday after its quarterly earnings report.

Before ChatGPT was released in November 2022, the share of the S&P 500’s market cap that came from stocks in the Philly Semiconductor Index (^SOX) — which also includes names like Nvidia (NVDA), Broadcom (AVGO), Intel (INTC), and Marvell (MRVL) — was around 6%, Bespoke noted. Today, that weighting is closer to 22%.

Looking at the 10 biggest holdings in the iShares Semiconductor ETF (SOXX), the worst year-to-date performer is Nvidia, which is up about 8%. The next-worst performer among the group is Broadcom, which has gained about 24% this year. Three names — Micron, Intel, and Marvell — are up more than 100% this year alone.

As a group, Bespoke noted that the Philly Semiconductor Index is 56% above its 200-day moving average.

For readers who aren’t technically inclined, the 200-day moving average is the average price of an asset over the last 200 trading days, or roughly 10 months, and can best be thought of as where the long-term trend for something — a stock, an ETF, an index — sits. Moves far above or below this level indicate prices that may be overheated or oversold.

Anything trading 56% of its 200-day moving average, in other words, is on a historic heater. The only other two times the group was this far above its 200-day were July 1995 and March 2000.

“July 1995 was still in the early days of the Dot Com boom of the 1990s, but March 2000 was the absolute peak,” Bespoke noted. “Either way, these kind of extreme readings can’t last forever, so we would temper expectations for the semis over the next twelve months at this point.”

Given the group’s influence on the overall direction of the stock market, investors betting on the index’s continued rally will need something else to get them through this period.

But that the AI trade has now had multiple leadership groups take up an index-level cause over the years — Magnificent Seven stocks, memory names, even energy and financials, to an extent — suggests this bull run is no one-hit wonder.