Semiconductor stocks, including giants like Nvidia Corp., Broadcom Inc., and Advanced Micro Devices Inc., could face significant downside if upcoming US jobs data indicate a sharper economic slowdown, according to Bank of America strategist Michael Hartnett. Hartnett warns that if US payroll figures released on Friday fall below 100,000, and the unemployment rate rises above 4.4%, it could trigger a substantial selloff in semiconductor stocks.
In such a scenario, Hartnett and his team predict that the Philadelphia Semiconductor Index, a key barometer for the sector, could drop to around 4,000 points, representing a decline of approximately 16% from current levels. This projection underscores the vulnerability of semiconductor stocks, which have been highly sensitive to shifts in economic data and sentiment about the Federal Reserve’s interest rate policies.
Global stock markets have already been rattled by recession fears, and the August payrolls report is set to become a crucial indicator for traders. Current forecasts point to an addition of 165,000 jobs with unemployment remaining at 4.2%, according to a Bloomberg survey. However, the so-called “whisper number” among Bloomberg terminal users is more pessimistic, projecting just 150,000 new jobs. Should the hard-landing scenario materialize, the Federal Reserve would likely respond with a 50-basis-point interest rate cut later this month, according to Hartnett.
Such a move would have wide-reaching market implications. A significant rate cut could send 10-year Treasury yields down toward 3%, from the current level of about 3.7%, potentially weakening the US dollar against major currencies like the euro and yen. Additionally, oil prices could fall to $60 per barrel, down from the current range of $70, further signaling a broader economic slowdown.
Conversely, a “perfect” jobs report—where payrolls land between 150,000 and 175,000—would indicate a softer economic landing. This would likely trigger a reversal in recent market trends, with defensive stocks losing their recent gains and sectors like technology and energy benefiting from renewed investor optimism.
Nvidia, which has surged by over 116% year-to-date, has played a pivotal role in the broader market’s performance, particularly in driving the S&P 500’s gains. Despite this, concerns are rising that the AI-driven rally fueling Nvidia’s rise could be running out of steam. The stock’s future, much like the broader semiconductor sector, may hinge on upcoming macroeconomic data and how the Federal Reserve chooses to respond.
Analysis: For investors, the upcoming US payroll data is a key event to watch. A weak jobs report could significantly impact sectors that have been performing well, such as semiconductors. With Nvidia and its peers at the forefront of market gains, a hard landing would cause substantial short-term pain for investors in these stocks. However, if the economic data shows stability, tech and energy sectors could experience a relief rally, offering potential buying opportunities for investors looking to ride the momentum in high-growth industries.
While Hartnett’s warning highlights downside risks, savvy investors may want to consider hedging positions or even waiting for market volatility to present better entry points, especially if they remain bullish on the long-term fundamentals of companies like Nvidia, Broadcom, or AMD.
