The AI business just had its scariest October in years. The rest of the stock market barely noticed.
The biggest AI and chip stocks have lost about $5 trillion in market value since Oct. 6, according to Yahoo Finance calculations. Nvidia (NVDA) and Alphabet (GOOGL) each gave up about $835 billion in market capitalization, and Intel (INTC) lost nearly half its value in October.
Everything else? The other 625 big U.S. stocks added about $1.3 trillion. And while the S&P 500 (^GSPC) fell this week, 9 of its 11 sectors rose about 1% or more, something that hasn’t happened since at least 1999, according to Yahoo Finance calculations.
Jeff Hirsch, editor of the Stock Trader’s Almanac, has a name for it: “Octoberphobia.” And he buys the sale.
“I bought some today…it’s an opportunity here,” Hirsch told Yahoo Finance on Friday. “The damage is not as bad as the headlines say.”
Hirsch also has the calendar on his side. October sell-offs like this often lead to what the Almanac calls the sweet spot of the presidential election cycle, which runs from the fourth quarter of a midterm year through the following June.
The story is on the buyers’ side
From the close of a midterm year last October through the end of the following June, the S&P 500 rose 19 of 19 times since 1950, with a median gain of about 15%. Chip stocks are up 8 for 8 since 1994, with a median gain of about 22%.
The ride hasn’t always been smooth. Chips fell another ~11% before rallying in 2002 and 2018, and eight cycles is a relatively small sample.
The tokens just triggered a possible bear trap
The iShares Semiconductor ETF (SOXX) fell about 17% in October, but it’s still up more than 50% this year.
On Friday, it fell as low as $460, below the July 29 low of $464 that marked this summer’s low. Then it closed at $472, back above that line. It’s like a bear trap: a breakdown that reverses, catching traders betting on more losses.
Hirsch likes timing. “Historically, seasonally, conditions are ideal for this time, the best months of the year for semiconductors,” he said. His company made a new purchase in the sector on Friday.
Bulls must first reclaim around $524, the high of last week’s rebound, then the early October high near $596. Losing the July low would put the February-April range in play near $370. That’s about 21% below Friday’s close.
The arguments in favor of waiting
Not everyone fills their basket.
BofA’s Michael Hartnett said it was “risk-free until the global rate hike ends”, pointing to 42 central bank rate hikes around the world in the past six months. The Fed held firm on Wednesday, but two officials voted in favor of a hike. Hartnett’s line in the sand for chips is $520 on the VanEck Semiconductor ETF (SMH), which closed Friday near $522. On SOXX, that equates to around $469, just above the July low that it barely held.
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