Morning Few: Michael Gayed on Unmasking Semiconductor Market Myths

What if the impressive performance of a few semiconductor giants is masking the true health of the entire sector? Join us for an engaging conversation with Michael Gayed from The Lead-Lag Report. We'll dissect how ETFs heavily weighted by companies like NVIDIA and Taiwan Semiconductor can create a distorted picture of industry strength. Michael will guide us through the importance of examining all stocks within a sector to get a genuine understanding of market dynamics and stock performance.

In addition to sector analysis, we'll explore why picking the right industry might be more crucial than selecting individual stocks in today's unbalanced market cycles. Michael shares insightful perspectives on the exceptional performance of sectors like semiconductors while cautioning that not all companies within a booming industry are on equal footing. We also delve into thought-provoking discussions on how market movements are increasingly driven by for-profit entities rather than governments, echoing the dystopian concerns raised in George Orwell's "1984." Don't miss this episode if you're looking to challenge conventional wisdom and gain a deeper understanding of market trends.

The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.

Transcript

Speaker 1: 0:01

It's time, with Michael Guyette of the Lead Lag Report, for your Morning Feud. Today we celebrate the first glorious anniversary of the information purification correctness. We have created, for the first time in all history, a garden of pure ideology where each worker may bloom, secure from the pests of their contradictory thoughts. Our purification, of course, is more powerful a weapon than any fleet, more army on Earth. We are one people with one will, one resolve, one cause. Our enemies shall talk themselves to death and we will carry them with their own confusion. We shall prevail. We shall prevail.

Speaker 1: 1:06

On January 24th, apple Computer will introduce Macintosh and you'll see why 1984 won't be like 1984. Read it to me. Hmm, all animals are equal, but some animals are more equal than others. It would appear that George Orwell was very good at predicting the future. My name is Michael Agaia. Today is June 11, 2024.

Speaker 1: 1:49

Welcome to another edition of Morning Few. These daily clips I put out with things that are on my mind Seems like the Apple of 1984 was a lot less 1984 than the Apple of 2024, given some of this AI integration, which should make everybody question if you really want that much information held by a select number of tech companies that are manipulating your data under the guise of a more convenient lifestyle. Today I want to focus on that point about. All animals are equal, but some are more equal than others, and broaden this out to a discussion around waiting. One of my longstanding themes for the last nine, 12 months has been we're in a concentration bubble. Most stocks are factually still trading below their 2021 respective highs, and what inspired this is a post I saw from the bar chart handle on X. I'm a big fan of bar chart, whatever it's worth. Not going to hate to say that, by the way, but I think this is interesting to kind of think through, because I always go back to this point that amateurs look to the right of the equal sign pros look to the left. We have to see sort of what is really happening beyond a headline. So this got quite a bit of buzz from the bar chart handle.

Speaker 1: 3:12

Semiconductor stocks are now outperforming the S&P 500 by the largest margin since 1998. And here is, of course, a price ratio of the VanEck Semiconductor ETF, smh, relative to the S&P 500. So you look at this and anybody that's followed me for a decade plus knows I often talk about intermarket analysis, often talk about ratios. You'd say, wow, that's pretty wild. The semiconductor space is the place to be. There's a problem with that. The problem is it's not the semiconductor industry that's outperforming the S&P 500. It's really a waiting scheme with one or two stocks driving that return. That's making it look like semiconductors are the best performing sector. You want proof of that? Let's look to the left of the equal sign. This is from VanEck's own website the holdings of its SMH ETF the semiconductor ETF referenced in that post, the semiconductor ETF referenced in that post NVIDIA makes up 24% of that fund, followed by Taiwan Semi at a distant 12%.

Speaker 1: 4:42

So you keep hearing this narrative semiconductors are the place to be. Semiconductors are the place to be. Semiconductors are the place to be. That's not really true. Idiosyncratic risk in a company that has gone. Manic has been the place to be. This is about a style of waiting which is confusing people as to what really is happening beneath the surface.

Speaker 1: 5:15

Here's a look at XSD. Xsd is the S&P Spider Semiconductor ETF, but in this case it's an equal-weighted ETF, so all the positions have and are rebalanced to the same weighting. In this case. This is also relative to the S&P 500, no different than what you saw with the bar chart. That looks very different. That ratio peaked, actually, in 2021.

Speaker 1: 5:45

If you really want to get a sense of if a sector is really strong, you have to look at all the stocks and constituents within the sector to see what the real average of the tailwind that supposedly is out there what that's actually doing to these companies. Most semiconductor stocks have not outperformed the broader market, which means most of these semiconductor ETFs which are taking enormous concentration risk in a select number of manic names and again we know which ones they are. It's creating a false narrative around broad-based health in an industry group. Now, all kinds of studies show that generally, stock price movement may be accounts for 5% 10% of a stock's total return. The vast majority of what drives stock returns is the broader market combined with the sector movement.

Speaker 1: 6:44

It's much more important to pick the right sectors in the right market environment than to choose the right stock, except in cycles like this, which are so incredibly one-sided. So before you argue that the semiconductor industry or really any industry, any sector is the only place to be is outperforming everything else, keep in mind all companies are equal, but some are more equal than others. On a side note, I really do hope that there's more so than what we've seen in the last several decades. Instead, this time it's not driven by governments, it's driven by for-profit entities. Is that the kind of world you want to live in? Because I got a good book for you about 1984. Thanks for watching.