Semiconductor equities are among the primary culprits behind a decline that’s seen the Nasdaq-100 Index shed 8.78% over the past month. But some market observers believe it’s merely a matter of time before previous stars such as Nvidia (NVDA) and Broadcom (AVGO) bounce back.
Such rebounds would be helpful to the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM) This pair of exchange traded funds track the NDX and are heavy on chip equities. The two ETFs feature nearly 20 semiconductor stocks on their rosters. That means industry represents a significant portion of the funds’ 50% allocation to the technology sector.
QQQ and QQQM are in correction territory. That’s due to the recent retrenchment by chip giants such as Broadcom and Nvidia, among others. Some of the chip names in the ETFs did wade in deeply overvalued territory. But some market observers believe the recent pullback has put some QQQ/QQQM semiconductor holdings into more palatable valuation territory.
Semiconductor Catalyst Near for QQQ, QQQM
Election Day is nearing and October will mark the start of third-quarter earnings season. So it’s possible equity market volatility increases over the near term. Chip stocks likely won’t be immune to that trend. But some market observers believe the group could rally in the tenth month of the year. That could potentially providing support to QQQ and QQQM along the way.
“Volatility could persist through NVDA earnings and then into Sep, historically the worst month for SOX, down 70% of the time. US elections and ongoing geopolitical tensions add an extra layer of uncertainty,” Bank of America analyst Vivek Arya wrote in a recent report. “However, if history is any guide, SOX could recover starting in October, with CQ4 and CQ1 the two strongest quarters for semi stock performance (7-10.5% avg. returns, 400bps+ ahead of SPX, since 2010).”
SOX refers to the PHLX Semiconductor. That’s a gauge in which many of the chip names held by QQQ and QQQM reside. The analyst noted that should semiconductor patch rebound, Broadcom, KLA Corp. (KLAC) and Nvidia — all QQQ/QQQM member firms — could be the leaders. In a sharper rebound scenario, some of the ETFs’ smaller chip holdings could lead.
“Arya added that the semiconductor industry is only in the fourth quarter of an upcycle, with the Philadelphia Semiconductor Index (SOX) having generated a return of 28%. Previous upcycles have lasted 10 quarters and generated an average return of 67% for the index,” according to Seeking Alpha.
For more news, information, and strategy, visit the ETF Education Channel.
