Morgan Stanley analyst warns: semiconductor sector may be experiencing a short-term peak

BlockBeats news, June 29 — The strategy team led by Mike Wilson at Morgan Stanley has indicated that in the current round of adjustments, investors need to significantly raise their stock selection criteria. Wilson stated that there is still room for the current market expansion to continue, with the core driver being that "the strength of the full-market earnings recovery is being severely underestimated by the market." Given falling oil prices and a high likelihood that the Federal Reserve's hawkishness will not match current market pricing, he is optimistic about the consumer discretionary, transportation, and regional banking sectors.

Another core concern for Wilson is that the recent sharp volatility in the semiconductor sector has greatly increased the difficulty of maintaining historically high portfolio allocations. The Philadelphia Semiconductor Index (SOX) exemplifies this volatility: during the week of June 15, the index surged by 7.3%, only to fall by 7.9% the following week.

He also drew a set of analogies to warn the bulls: semiconductors may become yet another sector this year to complete a boom-bust cycle, with a price trajectory similar to the silver sector, except that the semiconductor rally lags silver by four months. "If the market's broadening is the main narrative, then the current upward momentum in the semiconductor sector's prices will likely hit a short-term peak, and from a market rhythm perspective, this turning point seems to be occurring as expected. This does not mean the semiconductor industry cycle is completely over, but the sector's short-term lack of upward momentum will leave room for excess returns in other segments; consumer discretionary and transportation sectors, among others, will see a phase of relative strength driven by their own favorable factors."