Can Semiconductors Dodge the Trade War Crossfire?

The U.S.-China trade deal plays a profound role in the performance of the semiconductor sector given their exposure to China. So far, the tariff-for-tariff war between the two largest economies is putting semiconductors in the crossfire, but can the sector dodge get out their way moving forward?

“Due to their considerable exposure to the Chinese market and a heavily intertwined supply chain in Asia, semiconductor stocks have seen collateral damage as the US-China trade spat has escalated,” said a Direxion Investments “Xchange” post. “With more precise targeting technology, recent military engagements have seen unintended consequences decrease compared to what was seen even a few decades ago, but military action cannot avoid these unfortunate events and nor can a dispute played out in economic terms.

“To make matters worse, semiconductors are effectively everywhere today from computers to smartphones to televisions,” the post added. “Semis are one of the most cyclical industries as the replacement cycle for new chips is high thanks to the need for continuous reinvestment and technology innovation. Of course, like any industry, demand can also simply dry up should the buyers of semiconductors start spending less as they see less demand for end products like phones.”

When it comes to traders looking leveraged ETF opportunities, the semiconductor sector is one in which China will have a profound impact. As such, the U.S.-China trade war will continue to be closely watched as developments unfold.


“The semiconductor industry sits literally and figuratively between the U.S. and China as a considerable portion of high technology goods are made in China,” the “Xchange” post said. “As the conflict has escalated, so has damage across the industry. In particular, restrictions on selling to Huawei and overall slowing demand in China has been a drag on 2019 sales and 2020 guidance. The monthly performance of semiconductors relative to the broader market since the unofficial start of the trade war in early 2018 has reflected this dynamic in real time. The worst relative performance (-10%) occurred in May when the trade war focused firmly on a new group of goods of which semiconductors play an integral role in producing; cellphone and laptops.”

For the semiconductor bears, this could put the Direxion Daily Semiconductor Bear 3X ETF (NYSEArca: SOXS) in play. For investors looking to play a sub sequential bounce higher in semicondcutors can take advantage of the Direxion Daily Semiconductor Bull 3X ETF (NYSEArca: SOXL). Other ETFs without the leverage include the VanEck Vectors Semiconductor ETF (NYSEArca: SMH) and the iShares PHLX Semiconductor ETF (NasdaqGM: SOXX).

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