The tech-heavy Nasdaq Composite continues to lead other major indices in a big way, and the recent run to a new high is cementing its lofty status. The Nasdaq closed at 8,539.55 on Wednesday, its highest finish since January 2018. It’s up 21.2% year to date, ahead of the S&P 500’s nearly 16% gain and the Dow Jones Industrial Average’s almost 14% surge.
Much of the Nasdaq’s sizzle has come from the semiconductor sector, which is up an astonishing 38.3%. It’s been the tech index’s best-performing sector this year, and the staggering surge has been largely powered by higher demand for chips amid the global economic recovery.
This demand is being driven by consumer desire for the latest tech gadgets and a rebound in businesses boosting tech spending. It’s not just the S&P 500’s and Dow’s performance that are getting a boost from chips: The tech-focused MSCI World Information Technology Index is up 25.2% year to date.
The markets have been trading on a couple of powerful factors: Hovering investor anticipation for a strong earnings season, plus continued hopes for large stimulus measures in the face of the U.S.-China trade conflict.
This trade-off between optimism and pessimism has set up the Nasdaq Composite putting on a great show: Semiconductor stocks have seen their profits leap 56% on average compared with a year ago, and are projected to expand 31.5% this year.
Nvidia (NVDA) has been a frequent stand-out, and it has been a major reason the Nasdaq rose above 8,500 for the first time since the dot-com bubble. Nvidia gained 47% this year, and its name appears on the list of U.S. semiconductor stocks that have soared more than 50% in 2020.
As investors have prepared for the expected earnings gap, with analysts forecasting the S&P 500 to report a 14.2% drop in earnings in the second quarter, money has moved into sectors that haven’t seen such sharp earnings declines.
That includes the semiconductor sector, a static part of the market that has become the belle of Wall Street’s ball. Companies like Microsoft (MSFT), Samsung Electronics (005930KS) and Intel (INTC) have seen stellar returns, while chip equipment manufacturers like Applied Materials (AMAT) have benefited as well.
Despite the concerns over the trade war, the ongoing consequences of the global pandemic, and the potential for some market turbulence in the weeks ahead, the return of the Nasdaq’s reach to a key high is an encouraging sign. It’s a solid trade-off between hope and fear, and yet another success story brought about by the soaring semiconductor industry.