Market Quote: A Potential Pause in the U.S. Equity Rally and the Case for Semiconductor Stocks Long Term
Author: The editor's desk
April 3, 2024
A mid-week analysis of what’s happening in global financial markets from the perspective of AGF’s investment management team.
High Five
The S&P 500 Index has climbed higher in five consecutive months through March and may be due for a pause, which could be starting to happen this week. But even though the rally feels ‘heavy’ from the perspective of our trading desk, it remains a coin flip whether the U.S. equity market will correct in any great way over the next few months.
While the future ebb and flow of global markets remains largely subject to potential shifts in global central bank policy and ongoing geopolitical tensions in Ukraine, the Middle East and between China and the United States, investors seem mostly comfortable with the U.S. Federal Reserve’s current plan to lower rates starting later this year and appear more upbeat about the U.S. economy, employment and corporate earnings.
Semi Sweet
The S&P 500 Information Technology sector index was up over 12% during the first quarter this year, outperforming the S&P 500 Index by roughly two percentage points in the process. This outperformance can be largely attributed to the semiconductor sector, which climbed 17% year-to-date through March as measured by the PHLX Semiconductor Sector Index (SOX).
Given this strong performance – and the fact that some semiconductor stocks have reached fair valuations – we believe the IT sector’s relative performance could wane in the near term, yet our positive outlook towards semiconductor stocks remains intact assuming a longer time frame. In part, that’s because the sector stands to benefit directly from the ongoing expansion of Artificial Intelligence infrastructure, the build out of which is expected to encompass various areas.
Furthermore, product offerings within the sector will continue to diversify, extending beyond general-purpose graphics processing units (GPUs) to include custom Application-Specific Integrated Circuits (ASICs). Additionally, the adoption of AI applications is projected to expand from cloud-based solutions to including edge computing, while the participants in the AI industry are expected to broaden their scope beyond hyperscale companies and large internet service providers.
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The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds, or investment strategies.
Commentary and data sourced from Bloomberg, Reuters and other news sources unless otherwise noted. The commentaries contained herein are provided as a general source of information based on information available as of April 3, 2024 and are not intended to be comprehensive investment advice applicable to the circumstances of the individual. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Market conditions may change and AGF Investments accepts no responsibility for individual investment decisions arising from the use or reliance on the information contained here.
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Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. Our companies deliver excellence in investing in the public and private markets through three business lines: AGF Investments, AGF Capital Partners and AGF Private Wealth.
AGF brings a disciplined approach, focused on incorporating sound, responsible and sustainable corporate practices. The firm’s collective investment expertise, driven by its fundamental, quantitative and private investing capabilities, extends globally to a wide range of clients, from financial advisors and their clients to high-net worth and institutional investors including pension plans, corporate plans, sovereign wealth funds, endowments and foundations.
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