The stock market and the world of business and industry, in general, can have areas of growth and optimism simultaneously with decline and ambiguity. In direct access trading, you need to be prepared for the good and the bad. We are seeing a similar situation these days. Let’s start with the good news.
Stocks Extend Gains Following Favorable Vibes from Fed
The morning of Thursday, September 23 saw stocks extending their gains on the latest announcement by the Fed that it was considering rate hikes 6 to 7 times through 2024. What this did was indicate that the economy would recover from Covid-19 significantly enough for the Fed to increase its grip on its stimulus packages gradually.
The opening bell saw the major stock market indexes jump. After five sessions, the Dow Jones Industrial Average (DJIA) index saw growth for the first time. That helped it balance some of the major losses it sustained early this week. The September sell-off, however, looks set to ensure that the index would still post an almost 1% weekly decline.
Fed Moving in Line with Market Expectations
What helped the growth was the Fed’s indication that its policy tapering process would happen as per market expectations.
Jerome Powell, Fed chair, mentioned that the recovery of the US economy had actually exceeded his inflation goals. He is waiting for a positive jobs report for September. That would give the Fed the assurance it needs that its tapering decision is indeed appropriate.
China Evergrande Stock Rallies
Another factor that’s playing on the markets is the Chinese property stock China Evergrande ($3333.HK) that is in the midst of heavy debt, and is looking at around $84 million worth interest payments to foreign bondholders. The company said it would settle onshore interest payments, which sent its stock rallying 17% on the Hong Kong Stock Exchange. Offshore payments are in doubt though.
Auto Manufacturers Bracing for Sales Drops
Meanwhile, auto manufacturers are looking at revenue loss worth $210 billion due to the semiconductor shortage, as per research by AlixPartners. This is getting to a point where sales will get a big hit. Earlier, only manufacturing was affected. But since the crisis is continuing and the number of units manufactured gets lesser and lesser, auto companies will be seeing depleting inventories. So, there really won’t be vehicles to sell. AlixPartners is predicting global auto manufacturers to manufacture 7.7 million lesser vehicles. So, auto stocks are probably not on many investors’ agenda.
The Rising Demand for Semiconductor Stocks
However, semiconductor chip stocks are seeing huge demand. It’s worth remembering that though the auto industry is the worst affected, there are other industries too that are feeling the pinch, such as computer and laptop manufacturers, smartphone companies, and gaming equipment manufacturers.
Among the major semiconductor stocks is ASML Holding ($ASML) that supplies chip manufacturing equipment for semiconductor foundries. The company also has a 62% monopoly in the EUV (extreme ultraviolet) lithography market.
The above image by Motley Fool shows 5-year performance of ASML (in green) versus the S&P 500 (in grey). The company has outperformed the index. Q2 2021 saw the company record revenue worth $4.7 billion, a 21% year-over-year growth. The company also expects revenue growth of 35% in 2021.
Some semiconductor chip stocks, such as Skyworks Solutions ($SWKS) and Synaptics ($SYNA) have seen their products in growing demand. These stocks have experienced a pull back this month though, something that September is known for each year. But experts believe the long-term prospects are promising for these stocks, thanks to the immense potential of the industry.
As you can see, the simultaneous existence of both good and bad situations presents many investing opportunities. It’s what you need to capitalize on in online trading.
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