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Cue the sad music and take down the sparkly balloons, because the US stock market had a couple of bad days this week. For a while there it looked like it was in recovery mode, but the release of higher than expected August inflation numbers on Tuesday led to quite the dip and put an end to talk of a rally. We are pretty sure a number of financial experts are really looking forward to the return of “soggy bottoms” and “showstoppers” after a week like this one.
Consumer prices were up 8.3% from the same time last year and up 0.1% from the prior month, which is worse than economists anticipated. Fed Reserve Chair Jerome Powell is vowing to keep hiking interest rates “until the job is done” and inflation is reined in, regardless of how it hurts economic growth or employment numbers. The Fed committee meets again on September 21, when experts say another rate increase is almost guaranteed.
Going forward, sentiment will depend on how fast (or slowly) prices cool, as well as the upcoming earnings season in October. Close to half of all S&P 500 companies cited the term “recession” during last quarter’s earnings calls, the highest number since 2010. We know firms have begun tightening their belts, announcing job cuts or even taking away free caffeine fixes. There are also bigger crises elsewhere that could hurt stocks (and us all…), like the lockdowns in China, war in Ukraine, and energy shortages in Europe.
If you’re a young investor putting away money for retirement and other long-term goals, great job and keep at it (you’ve clearly read your FWIW newsletters closely 🙂)! When the glorious rebounds eventually come (🤞), you don’t want to be watching from the sidelines and miss them.
No matter where you are in your investing journey, instead of constantly checking your investment account balance and grimacing, use this time to strengthen your personal finances and learn more about aligning your investments with your values. Remember to heed the experts: maintain an emergency fund and take advantage of rising interest rates to grow your savings amid high inflation. Sign up for your employer’s 401(k) plan if one is offered and invest for the long term. As for the stocks you own or are eying, it’s recommended you rebalance your portfolio at least once a year — you can get a deeper look when earnings are announced and by learning about valuations.
Although there’s much lacking in terms of data and standards, it’s also never been easier to learn about how companies impact the things you care about. You can use some of the resources we’ve mentioned before, like ESG data providers, As You Sow’s many tools, and JUST Capital’s rankings; make your shareholder vote count; or focus on one of the many topics we’ve featured in previous editions of this newsletter, like religious beliefs, gender equity, or climate.
We also recommend nodding sagely and impressing anyone willing to listen with this interesting statistic: September is historically the weakest month for stocks, as this chart shows. Since 1950, the S&P 500 has averaged a 0.54% decline in September. But for some reason, the arrival of spooky October has historically scared the bears away and signaled the start of better days. We will be watching to see if this holds true in 2022.
News you can use
- Patagonia founder Yvon Chounard and his family irrevocably donated their complete ownership of the company to a series of trusts and not-for-profit organizations committed to fighting climate change. In an unprecedented move, the iconic mountaineer and his family committed two percent of their stock (and 100% of the shares with voting power) to Patagonia Purpose Trust, to ensure Patagonia continues to be run in a socially responsible way. The remaining non-voting 98 percent of stock went to Holdfast Collective to “fight the environmental crisis and defend nature.” In a letter to Patagonia’s employees and customers, Chounard proclaimed that “Earth is now our only shareholder.”
- While the ESG debate rages on at the highest levels, interest from the youngins in many of its underlying elements is strong. A survey of 200 senior leaders at investment firms in the US and UK reveals Gen Zs are already generating 28% of sustainable investment inquiries, only a little lower than Gen X (33%) and millennials (35%). The executives predict that ESG investments will account for 15% of all investments by 2025, more than twice what it is now.
- OhmConnect, a startup backed by giants like Carrier, SunPower, and Citigroup, has been credited with “quietly saving California’s grid” during the energy crisis. Founded in 2014, the company helps people save energy when prices spike and offers rewards like cash and gift cards for their efforts. For a 10-day period beginning on August 31, members reduced their electricity usage for 2.9 million collective hours, saving more than 1.5 gigawatt hours of electricity consumption.
Let’s Get Crunchy
Today we’re talking chips, and we don’t mean Doritos or Lays. That’s right, computer chips (or semiconductors if you want to get technical) — the star ingredient in everything from cars to smartphones to medical devices.
You’ve likely heard a lot about chips over the last two years as a global shortage disrupted supply chains. The need for the critical component spurred the recent passage of the US Chips and Science Act, which includes about $52 billion to boost domestic semiconductor manufacturing. Since then, chip makers have been touting their investments in the US, from Intel’s new plants in Ohio and Arizona to Wolfspeed’s plans for a factory in North Carolina.
Clearly chips are critical to the economy, but what do you need to know about investing in this booming sector? Let’s start with the basics.
What is a semiconductor?
A semiconductor is an element or compound that conducts electricity some of the time, as the name implies. Usually made of pure silicon crystal and often referred to as “chips”, they serve important functions like memory and microprocessing in computers and other electronics. Think of them as the brains and nervous system of your car, washing machine, or laptop.
How many do we need?
Our demand for chips grows with the use of electronics (how many screens does one person need?) and the introduction of new technologies. While a regular car may use about 150-300 chips, the average EV consists of around 3,000 chips. A record 1.15 trillion semiconductor units worth $555.9 billion were sold globally last year and IDC projects sales will touch $661 billion this year. McKinsey estimates it will be a $1 trillion industry by the end of the decade, with about 70% of growth being driven by just three industries: automotive, computation and data storage, and wireless. In fact, leaders in these industries complain that chip shortages are the primary challenges to their ability to scale.
Who are the major players?
If you’ve heard the marketing slogan “Intel Inside,” you already know the largest semiconductor company. Other giants include Taiwan Semiconductor Manufacturing, Samsung Electronics, Qualcomm, Broadcom, Nvidia, and ASML. Check out Built In’s list of 40 semiconductor companies to know, including many niche players specializing in areas like medtech, renewable energy, cybersecurity, and more.
How do you invest in semiconductors?
In addition to buying stock in individual companies, investors can gain access to the sector through exchange-traded funds (ETFs), which are essentially baskets of stocks. Going the ETF route can help balance the volatility that comes with investing in individual companies.
A few of the top semiconductor ETFs include:
- iShares Semiconductor ETF
- VanEck Vectors Semiconductor ETF
- Invesco Dynamic Semiconductors ETF
- First Trust Nasdaq Semiconductor ETF
- SPDR S&P Semiconductor ETF
What about the environmental impact?
Semiconductors are critical pieces of many solutions to the climate crisis, from EVs to wind turbines. In fact, some say they are fundamental to a more energy-efficient world. Yet chip manufacturing also has a substantial environmental footprint, consuming huge amounts of energy and water, and leaving behind hazardous waste.
Luckily, many companies in the industry are starting to clean up their act as some of their biggest customers (like Apple, Microsoft, and Google) strive to reduce carbon emissions in their supply chains.
If environmental sustainability is important to you, do your research to see what steps companies are taking before you invest. This can include reviewing their sustainability reports and checking out some of our favorite resources for researching ESG stocks and funds.
What else should investors know?
Beware of geopolitical risks as the US continues to take steps to cut China’s and Russia's access to advanced tech. Also, the industry is highly cyclical and subject to booms and busts as demand for various chips ebbs and flows. But overall, experts say future growth looks steady as the world’s appetite for semiconductors is about as insatiable as a wallflower standing near the chip bowl at the school dance.
Before you go -
Rest, relaxation, and a round of a-paws for Eebers, the TSA’s oldest and “cutest” dog, who has retired after a decade of service.
** FWIW team members own shares of Apple, Microsoft, Google.