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05.12.2021

The volatility of the semiconductor industry is extending to Wall Street and international trading markets. With chip shortages worsening due to unprecedented events and increased consumer demand, inflation fears are mounting for investors.  

In the past few years, chipmakers have dealt with trade wars that have increased tariffs on electronic components, COVID-19, which caused government shutdowns and natural disasters impacting lead times and production of commodities. Tack on power outages and fires at semiconductor factories to name a few more challenges, and it’s clear why ‘volatile’ is coined so often to describe chipmaking.  

Technology stocks and semiconductor manufacturers have been some of the biggest pandemic winners; however, they are now the epicenter of the inflation-fueled selloffs. 

 On Monday, chip stocks posted their worst day and showed signs of falling into correction territory.  

The selloffs have reverberated across global markets in the technology sector and other equities as indexes plummet. Asian chipmakers TSMC, Samsung, and MSCI experienced their biggest drop since February, while US-based Intel also saw losses.  

A rebound on Tuesday slightly padded the fall for technology stocks, but investors may still fear Federal Reserve policymakers increasing interest rates, which could hit hard.  

The mix of pent-up spending, supply bottlenecks and rise in commodity pricing, has created the perfect storm for increasing concern from investors. An article from the The Wall Street Journal surmises, “For the last 10 to 20 years, inflation hasn’t been a concern for investors and so, if you look at portfolios, they are not positioned for inflation risks.”  

Rising commodity prices and chip shortages have contributed to this decline in the technology market’s performance and higher inflation is expected to impact growth stocks with value coming from future earnings. For long-term investors in semiconductor stocks, the electronic component industry shortage is old news and market volatility feels like the new normal among navigating trade wars, COVID-19, natural disasters, and unpredictable factors chipmakers, distributors and other industry manufacturers face.  

 

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