June Gloom for Semiconductor ETFs?
This article was originally published on ETFTrends.com.
On a historical basis, June usually is not a good month for U.S. stocks. Over the past two decades, June has been the fourth-worst month of the year for the S&P 500 and the Dow Jones Industrial Average.
Among the exchange traded funds that could be tested in June are those with exposure to semiconductor stocks, including the VanEck Vectors Semiconductor ETF (SMH) and the iShares PHLX Semiconductor ETF (SOXX) .
Both SMH and SOXX posted double-digit gains in May, easily outperforming broader technology ETFs and the Nasdaq-100 Index along the way, but trade-related challenges could pop up in June.
Robert Maire “sees, in particular, a risk that the US will not only tighten some chip sales to China but also sales of chip-making equipment. That could in particular include ASML (ASML), the maker of the most cutting-edge “lithography” tools for fabricating semiconductor circuits,” reports Tiernan Ray for Barron's.
Trade Risks
There are some risks to consider with semiconductor stocks and ETFs. For example, President Donald Trump has pushed for restrictions on trade barriers with China, which might pose a threat to the sector. China is a key market for the global semiconductor industry, consuming more than $100 billion worth of semiconductors or roughly one-third of the world population.
“To protect our national security, the United States will implement specific investment restrictions and enhanced export controls for Chinese persons and entities related to the acquisition of industrially significant technology,” according to a statement issued by the White House earlier this week.
The Trump Administration plans to announce investment and trade-related restrictions targeted at China at the end of June.
“ We see virtually no upside coming out of those dates and large downside. The best that can happen is nothing happens and the can gets kicked down the road or something similar. There is a virtual certainty that US tech companies will be negatively impacted and that semiconductor companies will be front and center in that impact ,” said Maire, according to Barron's.
Aggressive traders looking to play a June slump in semiconductor stocks can consider the Direxion Daily Semiconductors Bear 3x Shares (NYSEArca: SOXS ) . SOXS attempts to deliver triple the daily inverse returns of the PHLX Semiconductor Index.
For more information on the tech segment, visit our technology category.
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