The once downtrodden semiconductor sector and related ETFs are now enjoying their best quarter in over two years as the trade tensions between the U.S. and China thaws and negotiations progress.
Year-to-date, the Invesco Dynamic Semiconductors ETF (NYSEArca: PSI) gained 21.2%, SPDR S&P Semiconductor ETF (NYSEArca: XSD) increased 23.6%, iShares PHLX Semiconductor ETF (NasdaqGM: SOXX) advanced 20.7% and VanEck Vectors Semiconductor ETF (NYSEArca: SMH) rose 21.7%, heading toward their best three-month period since the third quarter of 2016, while the S&P 500 Index added 13.1%.
Semiconductor stocks and sector-related ETFs have bounced back as tensions between the U.S. and China eased, the Wall Street Journal reports. The segment, though, is not out of the woods yet as the two countries hammer out the finer details on more delicate subjects, such as intellectual property, technology, cybersecurity, currency, agriculture and energy.
If Washington and Beijing can not find common ground or if the trade deal does not become finalized, analysts warned that it could upend the rally in chipmakers.
“The space that has benefited the most from the China black cloud being removed from tech is semiconductors,” Daniel Ives, a Wedbush Securities analyst, told the WSJ. “But those stocks would be front and center in terms of being punished if the ultimate trade deal isn’t what investors were hoping.”
Semiconductor have exhibited high sensitivity to the trade war because China is a strong driver for the chip-making sector, which includes several fast areas of growth including gaming and artificial intelligence. If the trade war is renewed, the barriers will raise costs for many of these multi-national companies.
“With tariffs going up, it’s going to create slower export opportunities for companies,” David Spika, president of GuideStone Capital Management, told the WSJ.
Furthermore, some are concerned that the tariffs and stronger dollar could diminish demand for U.S.-made products. U.S.-made computers and electronic products have seen demand diminish. Over the fourth quarter, global personal-computer shipments declined 6.9% year-over-year, according to Gartner data. World-wide sales of smartphones also stalled, only rising 0.1% from a year ago.
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