Morgan Stanley analyst warns: semiconductor sector may have peaked temporarily.

Mars Finance News. On June 29, a strategy team led by Morgan Stanley’s Mike Wilson warned that, in this round of market adjustments, investors selecting stocks need to significantly raise their screening standards. Wilson said there is still room for the current market rally to continue broadening, with the core driver being that “the strength of the full-market earnings recovery has been seriously underestimated by the market.” Against the backdrop of falling oil prices and the Federal Reserve’s hawkish posture likely being less severe than what the current market pricing implies, he is bullish on the consumer discretionary, transportation, and regional banks sectors.

Wilson’s other major concern is that recent sharp volatility in the semiconductor sector has made it much harder for the market to maintain historically high allocation positions. The volatility of the Philadelphia Semiconductor Index (SOX) is highly representative: during the week of June 15, the index surged 7.3%, then promptly fell 7.9% last week.

He also put forward a set of analogies meant to make bulls cautious: semiconductors could become another category this year to complete a new round of a blowout rally cycle. The price-action logic is similar to the silver sector, except that the semiconductor market lags silver by four months. “If the broadening of market conditions is the sustainable main thread, then the current upward price momentum in the semiconductor sector is likely to reach a phase of turning-point peak. Judging from the market’s pace, this inflection point appears to be arriving as expected. This does not mean the semiconductor industry cycle is completely over, but in the short term, the lack of upward momentum in this sector will leave room for other sectors to capture excess returns. Sectors such as consumer discretionary and transportation will, based on their own relative positives, usher in a period of stronger performance.”