BofA Spots A Demand Problem With Semiconductors

BofA Spots A Demand Problem With Semiconductors

BofA’s Michael Hartnett released a client note last Thursday titled “Big Fed, Big Tech, Big Yields.” The note had a lot of useful information. ZeroHedge Premium can see the report in full here. More importantly, within the chart pack, Hartnett outlined how the semiconductor book-to-bill ratio, otherwise considered an important leading indicator of demand trends, could be rolling over.

The semiconductor book-to-bill is a ratio of three-month moving averages of worldwide bookings and billings for North American-based semiconductor equipment manufacturers. It’s widely used as a leading indicator of demand trends within the industry. 

The data shown below shows semiconductor equipment bookings outpaced equipment billings on a three-month moving average since the steep drop at the beginning of the virus pandemic in early 2020 but has since stalled in early 2021. Hartnett overlays the PHLX Semiconductor Sector on a year-over-year basis with a red arrow pointing down, suggesting future demand issues within the industry could result in a correction.

PHLX Semiconductor Sector has stalled out for the last four weeks. 

Here are other notable charts Hartnett lays out in the client note: 

Central bank liquidity versus the market cap of Apple, Amazon, Facebook, Google, Microsoft, Netflix, and Tesla. Thank the Federal Reserve for inflating the stock market bubble in tech. 

Has China’s credit growth peaked? If so, this could have significant impacts on the global economy’s future growth. For more on this read, ““Peaking” China Credit Impulse Suggests Copper Prices May Have Topped.” Premium users can read a more in-depth analysis of China’s credit growth in a note titled “In Historic Reversal, China’s Credit Impulse Just Peaked: What This Means For Global Markets.” 

… and of course, BofA’s Bull & Bear Indicator is at 7.5, nearing “extreme bullish” levels which would be above 8. 

Despite the semiconductor shortage, the slump in the book-to-bill ratio suggests demand weakness could be ahead. 

Tyler Durden
Mon, 02/08/2021 – 22:00

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