Market Insights

Chipmakers have led the market all year, but they could be losing their edge as investors position for new conditions into yearend.

The Philadelphia Semiconductor Index ($SOX) dominated price action in the first half and remained the top performer through the end of the third quarter. But last week it faltered on bearish news from a key supplier and money shifted to new areas like precious metals, airlines and banks. Chips could even be on the verge of relinquishing their leading position to gold miners. (See chart below.)

All told, the S&P 500 rose 0.9 percent between Friday, October 11, and Friday, October 18. It was the sixth straight positive week and the fifth straight week of closing at a new record high. The index is now 36 points away from 5,900, having advanced 1,587 points in the last year.

The selloff in chip stocks came after Holland-based ASML (ASML) preannounced weak bookings. Coming from the world’s biggest supplier of semiconductor equipment, the news potentially suggested the industry’s boom is slowing. It also dragged on U.S. peers like Applied Materials (AMAT), Lam Research (LRCX) and KLA (KLAC).

Precious metals and their producers, on the other hand, surged. Gold hit a record high above $2,700 per ounce. Silver reached a 12-year high above $33 after clearing a resistance level from May. Easy-money policies and geopolitical uncertainty seemed to explain the moves. The European Central Bank lowered interest rates by 25 basis points last week and Reuters reported a 50 basis point cut may follow in December. Slowing growth in China also spurred hopes of more stimulus.

‘Air Cover’ for Jerome Powell?

“We see inflation broadly cooling around the world,” Jon Gray, Chief Operating Officer of Blackstone (BX) told CNBC on Thursday. He added that slowing wage growth and rental costs “give the Fed air cover … to lower rates.” His view could be important because BX is the world’s biggest private-equity firm with investments in a wide range of mid-level firms. It’s also a major real-estate holder.

In another potentially good sign for inflation, crude oil fell 8 percent. Energy is now the only major sector with a year-to-date gain in the single digits.

Retail sales beat estimates for the fourth straight month, further dispelling worries about a slowdown. That pushed the Atlanta Federal Reserve’s estimate of third-quarter economic growth to 3.4 percent, up from 2 percent at the beginning of September.

Some investors may view that combination of moderating inflation and healthy growth as favorable for risk appetite. They may also ask whether the strong economy will boost corporate profits above current consensus.

Airlines Fly

United Airlines (UAL) beat estimates for earnings, revenue and guidance as margins improved. It also announced its first share buyback since the pandemic. The results also lifted peers like American Airlines (AAL) and Delta Airlines (DAL), making airlines the strongest group last week after gold and silver miners.

Walgreen Boots (WBA) had its biggest weekly gain since Ronald Reagan was in the White House. The pharmacy chain reported better-than-expected profit and sales. However the big news was its plan to close 1,200 stores in the next three years. That spurred hopes of a turnaround in a stock that’s lost more than four-fifths of its value in the last decade.

Snap-on (SNA), BX and Travelers (TRV) also jumped to new record highs on strong quarterly results.

Speaking of new highs, TradeStation data shows 32 percent of the S&P 500 hitting new 52-week highs last week.

Overall, utilities and real estate investment trusts were the best-performing sectors last week. Energy and healthcare were the only two with negative returns. Technology lagged but eked out a gain of less than 0.1 percent.

Healthcare Costs

Aside from chip-equipment firms, health insurers like Centene (CNC) also fell. The group continues to struggle as increased use of medical services pushes up their costs. However, companies associated with providing the services advanced. That list includes Intuitive Surgical (ISRG), HCA Healthcare (HCA) and Boston Scientific (BSX).

Given the weakness in chipmakers, technology and the broader Nasdaq-100 remained below their highs from July. The S&P 500 and Dow Jones Industrial Average, on the other hand, made new record highs last week.

Strategists made some bullish calls last week. For example, Jonathan Golub and Patrick Palfrey of UBS raised their 2025 price target on the S&P 500 from 6,000 to 6,400. Ryan Detrick at Carson Group was similarly optimistic, saying that bull markets tend to last if they survive for two full years. (He placed the start of the current run in October 2022.)

Charting the Market

While stocks have steadily advanced, there seem to be few signals that might be considered bearish.

The S&P 500 hit a new record last Monday and pulled back on Tuesday. It then bounced at its high from the previous week, which is potentially consistent with an uptrend.

The Advance / Decline line also hit a new record. Some traders may view that as confirming the index’s gains. The moving average convergence/divergence oscillator (MACD) is additionally rising. That’s a potential sign of bullish momentum.

Pessimists might also struggle to describe the S&P 500 as overly euphoric. For example, Wilder’s Relative Strength Index (RSI) is still below overbought levels. The last price was also about 1 percent above the 10-day moving average, compared with roughly 4 percent in mid-August. Sentiment measures, like polls from the American Association of Individual Investors (AAII) and the National Association of Active Investment Managers (NAIIM), are also below recent highs. Is there still cash on the sidelines?

Finally, intermarket conditions may be viewed favorably. Cboe’s volatility index ($VIX.X) ended last week around 18, well above its 12 area in June and July. The 10-year Treasury yield has also paused after an early-October surge. Declines in either could potentially support risk appetite.

The Week Ahead

No major events are scheduled for today. The rest of the week is light on economic news but heavy on earnings, with more than one-fifth of the S&P 500 issuing results. Several Fed officials are scheduled to speak on various days (but not Chairman Jerome Powell).

General Motors (GE), Lockheed Martin (LMT), RTX (RTX), Verizon Communications (VZ) and Texas Instruments (TXN) are some of the big names tomorrow.

Wednesday brings crude-oil inventories and existing home sales. Boeing (BA), Coca-Cola (KO) and AT&T (T) report in the premarket. Tesla (TSLA), International Business Machines (IBM) and LRCX are due after the closing bell.

Thursday features initial jobless claims. Companies including Honeywell (HON), United Parcel Service (UPS) and Western Digital (WDC) are some of the big companies scheduled to report.

Durable goods orders are on Friday, along with results from Colgate-Palmolive (CL) and Centene (CNC).

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