LIVE MARKETS Chip stocks drop; Intel tumbles after turnaround pitch

Feb 18 – Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at [email protected]

CHIP STOCKS DROP; INTEL TUMBLES AFTER TURNAROUND PITCH (1215 EST/1715 GMT)

Wall Street’s semiconductor stocks took another hit on Friday, with Intel slumping to its lowest level in over a year, and the main chip index set to end a tumultuous trading week close to where it began.

Intel dropped 5.5% after a turnaround pitch from its senior executives late on Thursday failed to impress investors. Intel in recent years has fallen behind Taiwan Semiconductor Manufacturing Co in leading-edge manufacturing technology and lost market share to Advanced Micro Devices (AMD.O) and Nvidia (NVDA.O).

At least three brokerages cut their price targets on Intel following its presentation.

“To deal with its loss of transistor leadership, share loss to both competitors and customers, and lower margins, INTC plans to spend its way into a turnaround,” Jefferies analyst Mark Lipacis wrote in client note. “We don’t think investors will afford the stock a higher multiple until INTC produces concrete evidence these investments will generate a return.”

The Philadelphia Semiconductor Index (.SOX) is off around 2% and is on track to end the week down about 0.1%. The index on Wednesday was briefly up 6% for the week, but uncertainty about a potential war between Ukraine and Russia helped deflate those gains. Worries about rising interest rates have also hurt growth stocks.

Intel’s stock is now at its lowest level since November 2020. It has fallen 27% since February 2021, when Pat Gelsinger took over as CEO, winning the support of investors and analysts expecting the Intel veteran to navigate the company out of its manufacturing troubles.

Also weighing heavily on the SOX index on Friday, Nvidia and Micron Technology (MU.O) are both falling about 4%.

(Noel Randewich)

*****

WHAT HISTORY SAYS ABOUT GEOPOLITICS AND THE MARKET (1100 EST/1600 GMT)

As the world anxiously monitors tensions between Russia and Ukraine and reactions by other countries including the United States, Glenview Trust Co’s Chief Investment officer Bill Stone examined market moves around past geopolitical crises for clues as to what investors might expect.

Stone looked at 29 different geopolitical crises starting with WWII and found that on average, stocks were higher three months after a geopolitical shock, and following 66% of events, they were higher after only one month.

“The odds that stocks will be higher increases as time passes after the event. In addition, stocks sometimes jump sharply after a crisis, so getting out of the market could have significant opportunity costs,” Stone cautioned.

Of course there have been outliers in the form of more severe spill-overs into the economy and financial markets. For example during World War One, the New York Stock Exchange (NYSE) was closed for about four months, and stocks fell by approximately 20% once it reopened.

And then following the 9/11 attacks in the United States, financial markets did not reopen until September 17, when the S&P 500 fell almost 5% in a day.

So while investors should be prepared for additional volatility, history does seem to suggest that stock declines associated with geopolitical fears are generally “a temporary setback and an opportunity to buy at discounted prices.”

But Stone – who is also careful to mention the horrible human toll of these events – advises that investors keep enough low-risk assets like cash and high-quality bonds to support living expenses during unexpected disruptions.

Here is Glenview’s list of historical events and market reactions:

(Sinéad Carew)

*****

U.S. STOCKS STEP GINGERLY IN EARLY TRADE (1006 EST/1506 GMT)

U.S. stock indexes are little changed in early trade on Friday as investors keep a wary eye on developments in Ukraine heading into a long weekend.

This after U.S. Secretary of State Antony Blinken agreed to meet Russian Foreign Minister Sergei Lavrov next week, provided Russia has not invaded first, which appears to have somewhat calmed markets globally and dented demand for safe-havens. read more

Most major S&P 500 (.SPX) sectors are green so far, though changes are relatively modest across the board.

Communication services (.SPLRCL) and real estate (.SPLRCR) are among the top risers. Energy (.SPNY) and tech (.SPLRCT) are on the losing side.

Here is your early trade snapshot:

(Terence Gabriel)

*****

BULLS LOOK LIKE AN ENDANGERED SPECIES (0915 EST/1415 GMT)

Bullish sentiment in the latest American Association of Individual Investors Sentiment Survey (AAII) fell to its 29th lowest reading since the survey started in 1987. With this, pessimism increased, while neutral sentiment decreased.

AAII reported that bullish sentiment, or expectations that stock prices will rise over the next six months, fell 5.1 percentage points to 19.2%, well below the historical average of 38.0%. Optimism was last lower on May 25, 2016 (17.8%). Bullish sentiment is unusually low for the sixth consecutive week and below its historical average for the 13th consecutive week.

Bearish sentiment, or expectations that stock prices will fall over the next six months, popped by 7.7 percentage points to 43.2%, staying above the historical average of 30.5%. This is bearish sentiment’s 13th consecutive week above the historical average. It is also the fourth time in the past five weeks that pessimism is unusually high.

Neutral sentiment, or expectations that stock prices will stay essentially unchanged over the next six months, slipped by 2.6 percentage points to 37.6%. This is the ninth time out of the past 11 weeks that neutral sentiment is above its historical average of 31.5%.

AAII noted that for the sixth consecutive week, bullish sentiment is “unusually low.” AAII added that “historically, the S&P 500 index has gone on to realize above-average and above-median returns during the six- and 12-month periods following an unusually low reading for bullish sentiment.”

With these changes, the bull-bear spread slid to -24 from -11.1 last week read more :

Meanwhile, Barclays analysts are taking note of bullish sentiment’s sub-20% reading saying it has only happened on 31 occasions since 1988.

“So 30 out 31 times after the AAII BULL index fell below 20, equities went up over the next 6 months,” Barclays strategists said.

“So if history is any guide, based on the current AAII BULL index level, the chances of equities falling from here are very low,” they add.

(Terence Gabriel, Joice Alves)

*****

NASDAQ COMPOSITE: SPUTTERING THRUST (0900 EST/1400 GMT)

Amid recent Nasdaq weakness, one measure of internal strength is on the back foot again. That said, given that it is not far from its recent lows, traders will be watching its behavior closely. read more

Indeed, the Nasdaq New High/New Low (NH/NL) index, which topped at 96.4% in January 2021, and had been diverging for eight months into the Nasdaq Composite’s November peak, plunged to just 6% on January 28:

Late January’s 6% trough can be considered historically low and potentially washed out. Since the Great Financial Crisis, sub-10% readings have ultimately been closely associated with major IXIC lows.

With the Composite’s subsequent rally off its late-January low, the measure did improve to 22.2% on February 11. However, amid renewed jitters over the past week or so, the NH/NL index has turned down again. The measure ended Thursday at 17.6%, putting it just below its 10-day moving average at 18.6%.

And since this measure does not have a tendency to flat-line for long, but instead form V-bottoms and abrupt tops, traders will be watching to see if it will establish a higher-low vs a Nasdaq Composite lower-low, as it did in early 2016, and early 2009, or if it will break the recent trough and fall closer to zero, as it did in late 2011 and late 2018.

In March 2020, the measure simply reversed higher off its 1.2% trough, and did not look back.

(Terence Gabriel)

*****

FOR FRIDAY’S LIVE MARKETS’ POSTS PRIOR TO 0900 EST/1400 GMT – CLICK HERE: read more

Terence Gabriel is a Reuters market analyst. The views expressed are his own

Our Standards: The Thomson Reuters Trust Principles.