The iShares PHLX Semiconductor ETF (NasdaqGM: SOXX) at a decline 0.7% on Wednesday.

 

Semiconductor stocks are significantly sensitive to trade developments since the industry’s intricate supply chain is directly tied to China. While optimism over renewed trade talks have helped lift the sector, some experts underlined a wider slowdown on the horizon, The Wall Street Journal reports.

 

Andrew Zatlin, the founder of South Bay Research, asserted that weak sales in the semis industry could point to a sharp downturn into the global economy during the second half of the year since semiconductor chips are in almost everything from toys to airplanes and chip sales likely precede sales into end products that they are inserted into. “It’s July,” Zatlin said. “This is when stuff gets made for the holiday buying season.”

 

As outlined by World Semiconductor Trade Statistics projections, chip sales globally are calculated to dip about 12% this year from 2018. The trade group also presumed sales to only rise 5% in 2020.

 

Zatlin suggested that this new bust cycle in chip sales is a reflexion of decreased demand across China, Asia, and Europe. At the same time, this pullback is only about five months old and it does not appear to have bottomed out, which could be reflected on share prices in the coming months. “We have a long way to go,” Zatlin warned.

 

For more aggressive, risk-tolerant traders, ongoing weakness in chip stocks could spell short-term opportunity with leveraged exchange traded funds, such as for instance the Direxion Daily Semiconductor Bear 3X ETF (NYSEArca: SOXS). SOXS attempts to offer triple the daily inverse performance of the widely followed PHLX Semiconductor Sector Index (XSOX), the underlying index for SOXX.

Source: TRONSERVE