To: fedhead who wrote (21586 ) 7/30/1999 6:57:00 PM From: pater tenebrarum Read Replies (1) | Respond to
Anindo: re. the SOX: Bernie Shaeffer has recently done a study that showed that the semiconductor group is indeed the sector that is the best relative performer during times of rising interest rates. i believe there is a simple reason for this: semiconductor stocks are the ultimate cyclicals. as rising rates typically denote strong economic activity, the cycle of the semis' business turns up. demand for DRAMs rises, and DRAM prices go up. since most DRAM producers are 'marginal' producers, whose production costs are close to the current (still depressed) price of DRAMs, their earnings tend to rise exponentially on even small increases in the price of their products. naturally an upturn in the cycle of the equipment manufacturers follows on the heels of this. however, the Sox has risen some 180% since October already, so the lions share of it's potential gains is probably behind it for this cycle. in recent years the semi stocks have tended to top out in odd and bottom in even years in a 2-year up/down cycle. so '99 would be a year for a top. whether we have already seen that top is of course open to question, but like Don says, if a stock market correction of some significance lies ahead, it would be highly unusual for the highflyers of the latest bull run not to be affected by it. currently they profit from the perceived upturn in Asia and the need for money to rotate into something. however, should stocks in general be shunned for safer havens all of a sudden they could very well correct sharply. you also have to consider that these stocks are now over-owned "crowded trades". only yesterday an analyst said on CNBC that one "must own" these stocks. that's usually a strong warning sign. the last time i heard "must own" on CNBC it concerned AOL, which was then trading at 175.
