With the Semiconductor sector below but hailing its all-time highs, a lot of images come to mind; chief among them the 1999-2000 stock market bubble…
In early 2013 we noted a progression that would go on to birth the current economic expansion and stock market boom (of course, I didn’t come close to envisioning the extent of the boom that followed). I’ve belabored it often since, but here’s the short version of the progression yet again…
Fiscal Cliff drama resolves into market relief after Q4 2012 and this occurs right around the time we noted that Semiconductor Fab equipment bookings were ramping up → which projected a ramp in the cyclical Semiconductor industry → which would lead general manufacturing → which projected broader economic firming → which projected improving employment → and with ISM currently booming and the Semi cycle in full swing, voila, we are still on that continuum.
Speaking of which, and considering I am not one for subtlety, here’s the Continuum again so you have a cartoon to consider while digesting the rest of this post.
The Semiconductor cycle was born in 2013 just before long-term Treasury yields topped out into the climax of the Great Promotion Rotation hype that the financial media cooked up as a rationale for buying stocks. It turned out they did not need hype because overvaluation and over speculation aside, the cycle was real and backed by firm economic activity.
But it was a Goldilocks recovery and to this very day, the bond market has not changed its mind about that. If the backbone of the chart above (the red EMA 100) remains intact, the continuum… continues. We’ll return to the bond market a bit later in the post with some reasoning about why Janet Yellen or whoever replaces her may not be as lucky as the middle two mugs on the chart above.
So here we are nearly 5 years later and Semi Fab spending for 2017 has been robust and is projected the same for 2018. I’d tend to dismiss these projections as trend following happy talk as I would the average economist’s projections, but in this case, SEMI is charged with being accurate for industry users, not with running promotions upon we financial sphere types* looking for macro signals. Ever since we got the lift-off signal in January of 2013 I’ve watched closely to see if the rosy projections might be hype and all along they’ve been borne out. The only crack in the rose-colored glasses is that the rate of change has faded from what is, in essence, the 2017 actual to the 2018 projection. It’s hardly a concern in and of itself.
