mitch-c, thanks for your post, and welcome!
One of the things that is confusing Wall Street, in my opinion, is that in the last couple of cycles, major downtrends in the stock price took a number of months to be confirmed by weakness in the underlying business of the sector. But this time, we seem to have gone much longer past the peak in stock prices without seeing significant signs of business weakness, so it seems that the stock market may have lost its predictive powers for this sector. I believe the reason is that this time, the major peak was produced primarily by a blow-off speculative top in the NASDAQ, rather than by industry fundamentals. So while the current P/Es appear a little low considering what's happening business-wise, the P/Es in April had risen to unprecedented levels.
Yet to be seen is when, and to what extent, the slowing in economic growth which the Fed is pressing for will affect the semiconductor and semiconductor capital equipment industries. There is usually a time lag, especially for the equipment industry, but I wish I knew a way of quantifying it. I wonder what role the interest rate rises in '94 had in bringing on the '95-'96 tech decline. If they did play a role, then using that cycle as a model would suggest that the April stock peak was at least a year early by 1995 standards. |
