Chip stocks are the cheapest they've been in nearly seven years. How low is too low?
The significant sell-off in semiconductor stocks on November 5 has placed valuations at their lowest since January 2019, prompting discussions among contrarian investors about potential buying opportunities. This trend could have broader implications, especially if sustained earnings projections encourage a rebound in investor sentiment. The semiconductor sector's performance often mirrors broader tech market dynamics, which makes its recovery a critical barometer for risk appetite in equities and other asset classes, including currencies.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). Marketwatch's narrative suggests prices might have reached a tipping point, similar to how market corrections in tech can affect currency flows.
How firms align
JPMorgan is aligned with a bullish view, projecting a target of 1.10, while BofA expresses caution, placing its target at a more bearish 1.04. These forecasts indicate a divergence in expectations of future growth as the semiconductor sector stabilizes.
What the data shows
Our latest research highlights an uptick in earnings forecast revisions for major tech firms, with an Insight publication focused on tech stock performance available at /research/tech-sector-recovery. This could contribute to a stronger euro if confidence in equity markets returns.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Valuations in semiconductor stocks are at their lowest since January 2019.
- 02Traders should watch the tech sector for signals on broader market movements.
- 03A sustained recovery in semiconductor stocks could support a move towards 1.10 in EUR/USD.
- 04Consider potential buying opportunities in tech equities as a leading indicator.
Market implications
Monitor the EUR/USD around the 1.075 level as tech stock performance may influence broader currency trends. Upcoming earnings reports in the tech sector are anticipated to be crucial for sentiment shifts.
Risks to this view
A reversal in this outlook could occur if semiconductor stocks continue to decline, coupled with poor earnings results, thus weakening the euro further beyond levels projected by cautious firms like BofA.
Sentiment by currency
USD~EUR~JPY~GBP~Composite USD score: +0.00
Sources & References
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