Chip Stocks Buck Broader Slump -- WSJ

By Amrith Ramkumar Features Dow Jones Newswires

A decline in technology stocks moderated Monday and the shares of several chip makers turned higher, alleviating some concerns that last week's pullback could be the start of a deep rout.

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Nvidia Corp., the S&P 500's worst performer on Friday, Micron Technology Inc. and Texas Instruments Inc. were all up to start the week. The makers of computer chips used in everything from iPhones to self-driving cars have often led their larger counterparts in the tech sector on the way up and down, leading some investors to say the worst of the tech drop had passed. The Dow industrials fell 36.30 points, or 0.17%, to 21235.67.

The S&P 500 technology sector fell 2.2% last week -- its biggest weekly decline of the year -- as investors sold stocks that have led gains in the broader market in 2017, including Apple Inc., Netflix Inc., Amazon.com Inc., Facebook Inc. and Google parent Alphabet Inc. Some analysts and investors had grown concerned that the concentrated group of highfliers was vulnerable to a reversal.

The PHLX Semiconductor Index, a group of 30 semiconductor stocks, declined 0.5% Monday compared with Friday's 4.2% slide, which was its second-biggest daily drop of the year. Nvidia Corp. climbed 37 cents, or 0.25%, to $149.97 on Monday after shedding 6.5% Friday in its highest-volume trading day since 2004, according to FactSet.

"Is the panic over? To some extent, it feels like it is because if you look at Nvidia, it's bounced back off the low," said Yousef Abbasi, global market strategist at JonesTrading Institutional Services, after the market closed Friday.

Nvidia, which more than doubled over the seven months through Thursday, has been watched by some analysts and investors for signs about where the broader tech rally is heading.

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Some of the most actively traded options contracts on Nvidia stock Monday were calls, or bullish options, expiring in June, according to Trade Alert data.

"I think participants see this latest selloff as short-term in nature," said Fred Ruffy, an analyst at Trade Alert, adding that calls trading on Nvidia outpaced puts, or bearish options, exchanging hands on Monday. "There are people using options to play the stock for a rebound."

The PHLX Semiconductor Index has gained more than twice as much as S&P 500 tech stocks and Nasdaq Composite since the start of 2016. Although a strong 2016 accounts for much of the PHLX Index's gains, it has still fared better than the S&P tech sector and Nasdaq this year.

As investors dialed back on some of the most popular stocks of the year last week, some of this year's underperformers posted gains.

Energy stocks in the S&P 500, the worst performer of the 11 sectors this year, have risen more than 3% during the two-session tech selloff. The KBW Nasdaq Bank Index rose 4.9% last week -- its biggest weekly gain of the year. That bounce has raised the prospect that investors may rotate back into underperforming sectors, boosting what had been laggards for much of the year.

At the same time, investors say those sectors face challenges of their own. Bank stocks typically rise when long-term rates increase relative to short-term ones, but that so-called spread has been declining since the end of last year as investors reverse bets on quicker economic growth. Shares of energy companies have fallen largely because oil prices are down more than 14% this year.

That has made many analysts and investors wary of calling an end to the tech rally.

"It's all a herd mentality," said Robert Pavlik, chief equity strategist at Boston Private Wealth. "I think once you see this all sort of play out, the market is going to be looking for growth," he said, adding that he thinks investors will use the selloff as a buying opportunity for tech.

Some say chip makers are one group that has more room to run.

Many semiconductor companies have been benefiting from rising memory-chip prices, according to a Benchmark Research industry note published Monday. Global semiconductor revenue is forecast to increase more than 12% this year, research firm Gartner said in April.

The semiconductor index traded Friday at about 15.7 times Wall Street's projected earnings for the next 12 months, according to FactSet, below the Nasdaq's multiple of 22.5, suggesting that that they are still attractively valued relative to the broader market.

"At this point, in 2017, we see the group positioned mid-cycle," said Rick Schafer, managing director and senior analyst at Oppenheimer. "It's always tough when you're in the middle of a cycle to know whether you're in the third inning or the seventh."

--Ben Eisen, Gunjan Banerji and Akane Otani contributed to this article.

(END) Dow Jones Newswires

June 13, 2017 02:47 ET (06:47 GMT)