Why the SOX index is a good guide as to whether investors will lose their shirts

Markets may be worrying about China and Greece but they should keep a close eye on the Philadelphia Semiconductor Index (known as the SOX) which has a good correlation with leading global equity benchmarks and is sliding fast, says investment platform provider AJ Bell.
12 July 2015

“Whatever the product or service, there will be silicon chips – semiconductors - somewhere in the food chain, be it within a computer, handheld device, car, aircraft or smart-meter,” says Russ Mould, AJ Bell Investment Director.  “Silicon chips are therefore a useful proxy for economic growth and the SOX index has historically been a good guide to where America’s S&P 500 index might go – and by implication the world, as the US is the biggest and most influential stock market of all.” 
June profit warnings from Micron and AMD have got the second-quarter reporting season off to a bad start and all eyes are now on Intel’s figures on Wednesday 15 July, especially as the Californian company coughed up a big earnings disappointment in March.
Mould continues: “The Intel, AMD and Micron alerts all suggest PC demand is not great and according to IC Insights, the computing segment generated just over one-third of worldwide integrated circuit demand in 2014. Communications was also one-third, while consumer electronics represented a further 12%, cars around 8% and industrial, medical and other applications the rest of global chip sales.”

Notes for Editors 

  • A chart showing the historic correlation between the SOX and America’s S&P 500 is available on request.
  • The SOX is formed of 30 leading silicon chip and chip-making equipment specialists. Most are American, including microprocessor giant Intel, Analog Devices and Texas Instruments, but Taiwan Semiconductor Manufacturing Company (TSMC) and the UK's ARM are also featured. 
  • In spring, the SOX rose above the 700 mark for the first time since 2000 (when the technology bubble began to burst). It has since retreated 12% from its peak of 746 to 655.
  • It is possible to trade the SOX through the US-listed exchange-traded fund (ETF) iShares PHLX Semiconductor Index. It has the ticker of SOXX, has $493 million in assets under administration.
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