Semiconductor Stocks Are on a Historic 32-Year Run. Here's What Usually Happens After a Rally Like This.
Key Points
Semiconductor stocks have gained 40% since March 31.
Over its 32-year history, the index has seen another streak of more than 11 days only once.
Looking at the forward returns for chip stocks following lengthy winning streaks, history suggests that further gains are more likely than not.
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Semiconductor stocks are doing something they've never done before.
The PHLX Semiconductor Index and the Invesco PHLX Semiconductor ETF (NASDAQ: SOXQ), which tracks that index, have gone up for 17 consecutive trading days. That streak, which dates from March 31 to April 23, is the longest string of up days in the index's 32-year history.
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To put that in context, the SOX index has posted:
- a nine-plus day streak just nine times.
- a 10-plus day streak just five times.
- only one streak longer than 11 days (a 15-day streak in 2014).
It's not just the length of the streak that's historically impressive. It's also the strength of it. Longer streaks over the past three decades have typically resulted in gains of around 8% to 10%. This one? More than 40%!
Image source: Getty Images.
Historical long streaks of 9+ days
| Streak End Date | Length (Days) | Gain During Streak |
|---|---|---|
| 17/08/94 | 9 | 10% |
| 23/05/95 | 9 | 15% |
| 14/07/05 | 9 | 10.7% |
| 18/02/14 | 10 | 8.3% |
| 11/06/14 | 15 | 7.8% |
| 3/06/16 | 10 | 9.4% |
| 11/10/17 | 11 | 7.9% |
| 16/09/25 | 9 | 8.7% |
| 23/04/26 | 17 | 40.7% |
Data source: Yahoo Finance.
It's not a stretch to say that we've never seen anything like this in semiconductor stocks.
It'd be easy to assume that after such a strong and quick rally, the sector may have run too far, too fast. That the gains have already been gotten. This rally could almost certainly use a breather to digest the recent gains. But if we use history as a guide, this rally might be less of a point of exhaustion and more of a momentum-building moment.
Long winning streaks have historically led to further gains
I've identified any historical streaks of at least nine straight up days. From the end date of the streak, I calculated forward-looking returns over the next one-, three, six-, and 12-month periods. This is to get a sense of whether there's a short-term pullback after the streak ends and if there's still longer-term potential after such significant uptrends.
It turns out there is. Each instance, not surprisingly, has its own path of returns, but collectively, we can infer a couple of conclusions.
First, here's the table of historical semiconductor sector returns post-streak.
| Streak End Date | Length (Days) | Gain During Streak | 1M Forward | 3M Forward | 6M Forward | 12M Forward |
|---|---|---|---|---|---|---|
| 17/08/94 | 9 | 10% | 1.9% | 5.3% | 17.6% | 120.8% |
| 23/05/95 | 9 | 15% | 6.8% | 22.1% | (6.4%) | (11.5%) |
| 14/07/05 | 9 | 10.7% | (1.8%) | (5.8%) | 14.1% | (11.8%) |
| 18/02/14 | 10 | 8.3% | 3.1% | 3.9% | 12% | 25.8% |
| 11/06/14 | 15 | 7.8% | 0.4% | 3.7% | 11.1% | 15.6% |
| 03/06/16 | 10 | 9.4% | 1.5% | 14.6% | 18.6% | 56.8% |
| 11/10/17 | 11 | 7.9% | 5.6% | 8.2% | 9.4% | 1.2% |
| 16/09/25 | 9 | 8.7% | 9.8% | 15% | 28.2% | - |
| 23/04/26 | 17 | 40.7% | - | - | - | - |
| Average | - | 13.2% | 3.4% | 8.4% | 13.1% | 28.1% |
Data source: Yahoo Finance.
Semiconductor stocks saw additional gains in seven out of eight instances for each of the one-month, three-month, and six-month cohorts. The signal would appear to be strongest in that three-to-six-month range where the consistency of returns across each instance is higher.
The 12-month forward return may be 28%, but the variability is very high. That number is skewed higher by the 56% return in 2016 and the 120% return in 1994. There were two double-digit losing periods and the median return is a more modest 15.6%. That doesn't necessarily mean the returns are bad. It just means that the average number needs a little context.
However you want to slice it, these returns are still higher than the average long-term returns for the S&P 500. Long streaks of positive returns for chip stocks don't necessarily mean that the gains are over. Even though the sample size is small, history suggests that these streaks are momentum builders more than anything.
History says to hold on to your semiconductor stocks
During past nine-plus-day winning streaks, stocks have, on average, delivered strong returns over the subsequent three to 12 months even after the streak is over.
But it's important to remember that:
- this is a very small sample size.
- the range of results in any given data point is very wide.
- the current rally doesn't look like the previous ones.
Only one streak has been longer than 11 days. This one is at 17. The current 40% gain is nearly triple that of the next closest rally. We're truly in uncharted territory and that means anything could happen from here.
But there's enough history, I believe, to say there's a good chance that the upside for semiconductor stocks isn't over yet. An 87% success rate of positive returns over the next three-month and six-month periods might be the sweet spot for investors to squeeze out further gains.
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David Dierking has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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