(Bloomberg) — Chipmakers appear set for a rebound, and that could be a signal that the S&P 500 Index has bottomed out after hitting a technical correction.
For example, in May the index dropped 14% but rallied after hitting the key 30 RSI technical level. It happened again in mid-September, when the basket of chipmakers dropped over 9% and then started climbing after reaching oversold levels.
In both instances, the extreme moves in the SOX had minimal effects on the broader S&P 500. That’s not the case this time, as the SOX has plunged just shy of 20% from its recent high on an intraday basis, nearing a bear market, while the S&P 500 dropped over 12%, marking a technical correction.
Chip-maker stocks rose through most of 2020 and 2021, thanks to voracious global demand and a shortage that’s affected everything from auto manufacturers to smartphone-makers. The most recent leg up in October was fueled by a boom in electric-vehicle stocks. As the race to reduce reliance on fossil fuels and compete with Tesla Inc. intensified, the need for chips by Ford Motor Co., General Motors Co. and other global carmakers surged.
Losses in the index since their most recent peak on Jan. 3 have been led by Advanced Micro Devices Inc., Nvidia Corp. and Broadcom Inc., companies that are closely associated with Big Tech and its supply chain. In fact, Nvidia actually can be counted as a Big Tech stock since it has the seventh largest weighting in the S&P 500. AMD, meanwhile, is building chips for data-processing centers meant to fuel the metaverse, and Broadcom is a key supplier for Apple Inc.
The bottom line is, with the SOX currently looking oversold, history says a rebound should be on the way. And if that happens, the broader market may not be far behind — led by Big Tech.
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
