The Xchange Blog

Semiconductor Stock Trades: Tariffs Schmariffs.

Another round of tariffs, another handful of industries starting to feel the heat from the President Trump’s “America first” approach to achieving global trade parity. Add to that the simmering tension in negotiations with America’s NAFTA cohorts, and the next few months could approach a definitive moment for the U.S. and its trading powers.

This time the office of the US Trade Representative (USTR) is focusing its efforts on intellectual property theft from China, while China has introduced its own counter-tariffs that take further aim at $60 billion worth of U.S. raw materials and agriculture, two industries that makeup a key part the president’s base.  

The biggest industry outcry so far from the latest list of proposed import taxes has come from representatives of the semiconductor and graphics processing unit (GPU) producers. When USTR released its list of taxable imports, SEMI, the global industry association serving the manufacturing supply chain for the electronics industry, released a statement in August estimating the added cost of 29 items to be about $500 million annually to its semiconductor-related companies.

The semiconductor industry took a marked dip following the proposal, as well as less-than-stellar earnings from Taiwan Semiconductor that showed lowered guidance for the fiscal year.

SOXL and SOXS vs. PHLX Semiconductor Sector Index

Data Range: 8/15/2018 – 8/31/2018. Source: Bloomberg. The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. For standardized performance and the most recent month-end performance, click here.

Although battered, the analyst view on semiconductors remains strong. In August alone, analysts at Cowen & Co. upgraded Applied Materials, Qualcomm, and Microchip Technology, while NVIDIA got a couple of nods from Wells Fargo and Oppenheimer and Advanced Micro Devices got their own upgrade from Goldman Sachs.

Direxion’s semiconductor ETFs, the Direxion Daily Semiconductor Bull 3X Shares (SOXL) and Direxion Daily Semiconductor Bear 3X Shares (SOXS) have both been weak of late, but their fund flows suggest traders are still using them for their intended use. SOXL has $6 million in inflows since the start of July, and SOXS has $10 million in outflows over that same time.

Overall, the worry over tariffs might be premature, and fears about lagging GPU sales to cryptocurrency miners pale in comparison to other areas like video games and automotive systems. While added tariffs would provide some drag to the industry when they take effect in mid- to late-September, their outlook for now remains solid.

One thing that’s also solid: Tariffs or no tariffs, whichever side of the semiconductor trade you’re on, Direxion has the 3X leverage to magnify your exposure and express your confidence.

 

Related Leveraged ETFs

 


Each leveraged ETF seeks investment results that are 300% of the return of its benchmark index for a single day. Each Fund should not be expected to provide returns which are three times the return of benchmark’s cumulative return for periods greater than a day. Investing in a Direxion Shares ETF may be more volatile than investing in broadly diversified funds. The use of leverage by a Fund increases the risk to the Fund. The Direxion Shares ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged investment results and intend to actively monitor and manage their investment.
 
SOXL SOXS Risks – Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with the Funds’ concentrating their investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Each Fund does not attempt to, and should not be expected to, provide returns which are three times the return of their underlying index for periods other than a single day. Risks of each Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Counterparty Risk, Intra-Day Investment Risk, and risks specific to the Semiconductor Industry, such as Large-Capitalization Company Risk, Small- and/or Mid-Capitalization Company Risk, for the Direxion Daily Semiconductor Bull 3X Shares, Daily Index Correlation/Tracking Risk and Other Investment Companies (including ETFs) Risk, and for the Direxion Daily Semiconductor Bear 3X Shares, Daily Inverse Index Correlation/Tracking Risk and risks related to Shorting and Cash Transactions. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.
 
PHLX Semiconductor Sector Index (XSOX) –  Measures the performance of domestic companies engaged in the design, distribution, manufacture and sale of semiconductors. One cannot directly invest in an index.