Today was just another day in the stock market. The S&P 500 hit another record high of 6875.16. The Nasdaq, DJIA and Russell 2000 also closed at record highs. Been there, done that! More records are likely when the Fed cuts the federal funds rate by 25 basis points on Wednesday.
On Thursday, President Donald Trump and Chinese President Xi Jinping are scheduled to meet. The stock market rose today following reports that they would agree on a framework for a possible trade deal. This would amount to a ceasefire in their trade war, with the postponement of additional 100% tariffs on Chinese imports and severe Chinese restrictions on their exports of rare earth minerals and magnets to the United States. Hooray!
The stock market also rose today on more news (hype?) about AI. Qualcomm made headlines today with a significant jump in the AI data center market, unveiling new chips that sent its stock up more than 11%. It is collaborating with HUMAIN, a Saudi AI startup, to deploy 200 megawatts of AI infrastructure starting in 2026. Qualcomm now aspires to be a serious competitor against Nvidia and AMD in the AI accelerator space. The more competition, the merrier as the stock prices of all three rose.
Semiconductor stocks were once considered very cyclical because their earnings were cyclical (chart). Thus, the sector’s forward P/E has tended to be around 15.0 during the period between the Great Financial Crisis and the Great Virus Crisis. It now sits at 30.0 as earnings forecasts have reached record levels over the past two years.
Forward earnings for the S&P 500 semiconductor sector were cyclical because the sector’s forward profit margin was cyclical (chart). There was a boom and bust cycle. In good times, companies sold lots of chips and built up inventories, exacerbating downward pressure on their prices during bad times.
