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Nasdaq 100 Forecast: Can Semiconductors Lead the Index Higher?

Nasdaq 100 Forecast: Can Semiconductors Lead the Index Higher?

Peter Hanks, Strategist

Nasdaq 100 Forecast:

  • The Nasdaq 100 enjoyed a boost from the phase one trade deal between the United States and China
  • The pause has seen semiconductor stocks outperform as the case for Chinese demand picks up
  • Still, there has been little mention of Huawei and its presence on the US blacklist. Will Micron’s earnings later this week undercut recent semi gains?

Nasdaq 100 Forecast: Can Semiconductors Lead the Index Higher?

US equities rocketed higher last weekafter it was announced the United States and China were on track to agree to a phase one trade deal. While the exact terms of the deal are still unclear, markets rejoiced on Monday as the December 15 tariff-deadline passed without any action from the United States. Therefore, the market has been offered at least one palpable development, even as the details of the broader agreement remain unknown.

Nasdaq 100 Price Chart: 1 - Hour Time Frame (December 2019) (Chart 1)

Nasdaq 100 chart

Consequently, the Nasdaq 100 could be positioned for an extension higher if further details begin to emerge and tangible progress is delivered. Already, however, the semiconductor sector (SOX ETF) boasts an incredible rally in the year-to-date, surging nearly 60% in the face of the significant headwind posed by the trade war. With the economic dispute on pause for the time being, the high-growth semi sector could look to lead the way as it capitalizes on the new trade climate, but key risks remain.

First and foremost, there have been few details offered on the status of Huawei. Months ago, Commerce Secretary Wilbur Ross said US-based chip makers were being granted exemptions to supply Huawei with chips. Similarly, Micron announced in its second quarter forecast, about six months ago, that they had found a workaround to allow for greater exports to China yet their revenue has fallen alongside exports.

huawei suppliers

Source

Further still, the Wall Street Journal recently reported Huawei has successfully begun offering products that do not require US hardware, creating potential for a gap to develop between an expected rebound and reality. With that in mind, quarterly earnings from Micron due this Wednesday afternoon could be an early opportunity for deeper insight on the outlook of the semiconductor sector and a key driver of growth for the broader Nasdaq 100.

If Micron reports a material improvement in overseas orders, it could be an indication the shift away from US products was not as widespread as initially suggested, or the alternatives fall short. On the other hand, Micron could reveal Chinese demand has largely evaporated as Huawei and other companies expand their relationship with foreign competitors. In the meantime, follow @PeterHanksFX on Twitter for updates and analysis as this key development unfolds.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

Read more:Stock Market Crashes: Current Climate Compared to Prior Conditions

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