In the technology era, semiconductor spending plays a huge role in the global economy. After all, semiconductor companies generated nearly $475 billion in revenue in 2018 alone.
Given that critical economic role, strong performance in semiconductor stocks should have positive implications for the broader stock market.
The following chart plots the relative performance of semiconductor stocks against the S&P 500 Index for the past six years. When the line is rising, semiconductor stocks are outperforming the S&P 500, and vice versa when the line is falling.
Historically, when the line reaches a new high following a consolidation (the white parts of the chart), it means improving economic conditions and positive performance for the stock market.
Recently, this ratio has achieved new highs as semiconductor stocks have been outpacing the broader stock market.
Not only does this suggest we might avoid a recession, it also hints that the stock market may be in the early stages of a new bull market.
You can position yourself ahead of the crowd with the VanEck Vectors Semiconductor ETF (NYSE: SMH).
This exchange-traded fund (ETF) includes the top companies in the semiconductor industry.
Research Analyst, Alpha Stock Alert
P.S. My colleague Ted Bauman just recommended a unique player in this sector. Ted predicts this stock will soar 150% or higher over the next two to three years.
This recommendation is only for Ted’s subscribers, however. To learn more about his Bauman Letter service, click here.