A bear market that began on the first trading day of 2022 has the S&P 500 on track for its worst first half in 52 years. Investors looking ahead to the end of the year might have some reason for hope, though history is only a rough guide.
The S&P 500 SPX was down 19.9% year-to-date through Wednesday’s close, which would be its worst first half since 1970, according to Dow Jones Market Data.
The large-cap benchmark is down 20.4% from its record finish on Jan. 3. The index earlier this month first ended more than 20% below that early January record, confirming that the pandemic bull market — as widely defined — had ended on Jan. 3, marking the start of a bear.
The S&P 500 has bounced around 4% off its 2022 low close of 3,666.77 set on June 16.
Data compiled by Dow Jones Market Data shows that the S&P 500 has bounced back after past first-half falls of 15% or more. The sample size, however, is small, with only five instances going back to 1932 (see table below).
The S&P 500 did rise in each of those instances, with an average rise of 23.66% and a median rise of 15.25%.
Investors, however, may also want to pay attention to metrics around bear markets, particularly with the will-it-or-won’t-it speculation around whether the Federal Reserve’s aggressive tightening agenda will sink the economy into recession.
Indeed, an analysis by Wells Fargo Investment Institute found that recessions accompanied by a recession, on average, lasted 20 months and produced a negative 37.8% return.
Bear markets outside a recession lasted 6 months on average — nearly the length of the current episode — and saw an average return of -28.9%. Taken together, the average bear market lasted an average of 16 month and produced a -35.1% return.
Other major indexes are also set to log historic first-half declines.
The Dow Jones Industrial Average DJIA was down 14.6% in the year to date through Wednesday, which would be its biggest first-half fall since 2008.
As the table below shows, the second-half performance for the blue-chip gauge after first-half declines of 10% or more are variable. The most recent incident, in 2008 during the worst of the financial crisis, saw the Dow drop another 22.68% in the second half of the year.
In the 15 instances, the Dow rallied in the second half two-thirds of the time, producing an average second-half rise of 4.45% and a median gain just shy of 7%.
The tech-heavy Nasdaq Composite COMP was down 28.6% year-to-date through Tuesday’s finish, but there was little to go on when Dow Jones Market Data looked back at first-half drops of at least 20% for the gauge.
There were only two instances — 2002 and 1973 — and both saw the Nasdaq keep sliding over the remainder of the year, falling around 8.7% over the second half in both instances.
Published: Dec. 27, 2021 at 10:47 p.m. ET, By Associated Press
Semiconductor newbies Alibaba, Tencent, Xiaomi pledge to make China a global chip leader
To help make China a self-reliant “technology superpower,” the ruling Communist Party is pushing the world’s biggest e-commerce company to take on the tricky, expensive business of designing its own processor chips — a business unlike anything Alibaba Group has done before.
Its three-year-old chip unit, T-Head, unveiled its third processor in October, the Yitian 710 for Alibaba’s cloud computing business. Alibaba BABA says for now, it has no plans to sell the chip to outsiders.
Other rookie chip developers including Tencent, a games and social media giant, and smartphone brand Xiaomi are pledging billions of dollars in line with official plans to create computing, clean energy and other technology that can build China’s wealth and global influence.
Processor chips play an increasingly critical role in products from smartphones and cars to medical devices and home appliances. Shortages due to the coronavirus pandemic are disrupting global manufacturing and adding to worries about supplies.
Chips are a top priority in the ruling Communist Party’s marathon campaign to end China’s reliance on technology from the United States, Japan and other suppliers Beijing sees as potential economic and strategic rivals. If it succeeds, business and political leaders warn that might slow down innovation, disrupt global trade and make the world poorer.
“Self-reliance is the foundation for the Chinese nation,” President Xi Jinping said in a speech released in March. He called for China to become a “technology superpower” to safeguard “national economic security.”
“We must strive to become the world’s main center of science and the high ground of innovation,” Xi said.
Beijing might be chasing a costly disappointment. Even with huge official investments, businesspeople and analysts say chipmakers and other companies will struggle to compete if they detach from global suppliers of advanced components and technology — a goal no other country is pursuing.
“It’s hard to imagine any one country rebuilding all of that and having the best technology,” said Peter Hanbury, who follows the industry for Bain & Co.
Beijing’s campaign is adding to tension with Washington and Europe, which see China as a strategic competitor and complain it steals technology. They limit access to tools needed to improve its industries.
If the world were to decouple, or split into markets with incompatible standards and products, U.S.- or European-made parts might not work in Chinese computers or cars. Smartphone makers who have a single dominant global operating system and two network standards might need to make unique versions for different markets. That could slow down development.
Washington and Beijing need to “avoid that the world becomes separated,” U.N. Secretary-General Antonio Guterres told The Associated Press in September.
China’s factories assemble the world’s smartphones and tablet computers but need components from the United States, Europe, Japan, Taiwan and South Korea. Chips are China’s biggest import, ahead of crude oil, at more than $300 billion last year.
Official urgency over that grew after Huawei Technologies Ltd., China’s first global tech brand, lost access to U.S. chips and other technology in 2018 under sanctions imposed by the White House.
That crippled the telecom equipment maker’s ambition to be a leader in next-generation smartphones. American officials say Huawei is a security risk and might aid Chinese spying, an accusation the company denies.
Huawei and some Chinese rivals are close to matching Intel Corp., Qualcomm Inc. QCOM, South Korea’s Samsung Electronics, and Britain’s ARM Ltd. at being able to design “bleeding edge” logic chips for smartphones, according to industry analysts.
But when it comes to making them, foundries such as state-owned SMIc in Shanghai are up to a decade behind industry leaders including TSMC, or Taiwan Semiconductor Manufacturing Corp., which produces chips for Apple Inc., and other global brands.
Even companies such as Alibaba that can design chips likely will need Taiwanese or other foreign foundries to make them. Alibaba’s Yitian 710 requires precision no Chinese foundry can achieve. The company declined to say which foreign producer it will use.
“My country still faces a big gap in chip technology,” said industry analyst Liu Chuntian of Zero Power Intelligence Group.
China accounts for 23% of global chip production capacity but only 7.6% of sales.
Packing millions of transistors onto a fingernail-size sliver of silicon requires some 1,500 steps, microscopic precision and arcane technologies owned by a handful of U.S., European, Japanese and other suppliers.
They include KLA Corp. in California for super-precise measurement and Japan’s TEL for machines to apply coatings a few molecules thick. Many are covered by restrictions on “dual use” technologies that can be used in weapons.
China “lags significantly” in tools, materials and production technology, the Semiconductor Industry Association said in a report this year.
Washington and Europe, citing security worries, block access to the most advanced tools Chinese chipmakers need to match global leaders in precision and efficiency.
Without those, China is falling farther behind, said Bain’s Hanbury.
“The TSMC horse is sprinting away and the Chinese horse is stopped,” he said. “They can’t move forward.”
Washington stepped up pressure on Huawei last year by barring global foundries from using American technology to produce its chips. U.S. vendors can sell chips to the company, but not for next-generation “5G” smartphones.
For its part, the European Union said it will review foreign investments after complaints China was eroding Europe’s technology lead by purchasing important assets such as German robot maker Kuka.
Alibaba’s Yitian 710 is based on architecture from Britain’s Arm, highlighting China’s enduring need for foreign know-how. Alibaba said it still will work closely with longtime foreign suppliers Intel, ARM, Nvidia Corp., and Advanced Micro Devices Inc. AMD.
T-Head’s first chip, the Hanguang 800, was announced in 2019 for artificial intelligence. Its second, the XuanTie 910, is for self-driving cars and other functions.
In November, Tencent Holding, which operates the WeChat messaging service, announced its first three chips for artificial intelligence, cloud computing and video.
Beijing says it will spend $150 billion from 2014 through 2030 to develop its chip industry, but even that is a fraction of what global leaders invest. TSMC plans to spend $100 billion in the next three years on research and manufacturing.
China is trying to buy experience by hiring engineers from TSMC and other Taiwanese producers. Taiwan, which Beijing claims as part of its territory and has threatened to attack, has responded by imposing curbs on job advertising.
Beijing encourages smartphone and other manufacturers to use suppliers within China, even if they cost more, but officials deny China wants to detach from global industries.
“We will never go back in history by seeking to decouple,” Xi said in a speech by video link to a November meeting of Asia-Pacific leaders in Malaysia.
The latest conflict is over photolithography, which uses ultraviolet light to etch circuits into silicon on a scale measured in nanometers, or billionths of a meter.
The leader is ASML ASML, +1.25% in the Netherlands, which makes machines that can etch transistors just 5 nanometers apart. That would pack 2 million into a space one centimeter wide.
China’s SMIC is about one-third as precise at 14 nanometers. Taiwan’s TSMC is preparing to increase its precision to 2 nanometers.
SMIC wants to upgrade by purchasing ASML’s latest machine, but the Dutch government has yet to agree.
“We will wait for their decision,” said an ASML spokeswoman, Monica Mols, in an email.
AirAsia Group Bhd is looking into making more acquisitions to turn the company into one of the region’s top players in the technology industry.
After executing a number of deals this year, including Gojek Thailand and Malaysia-based online food delivery platform DeliverEat, AirAsia chief executive officer Tan Sri Tony Fernandes said he had a pipeline of plans to strengthen the group’s services and position at home as well as in the region.
“We are targeting another four to five acquisitions and it’s all about acquiring talent. For instance, DeliverEat has more than eight years experience in the delivery industry,” he told reporters at a virtual press conference after the launch of AirAsia ride-hailing service AirAsia Ride yesterday.
The acquisitions are part of the group’s digital transformation plan to become Asean’s top super app that currently offers food delivery, ride-hailing, flight ticket booking, grocery shopping and an e-commerce platform for beauty products.
AirAsia’s digital logistics venture Teleport has signed an agreement to acquire 100% equity interest in local online food delivery platform Delivereat for US$9.8mil (RM41.52mil) to strengthen its delivery service in the country.
Teleport chief executive officer Pete Chareonwongsak (pic) said the acquisition would be satisfied via a combination of cash and the company’s shares.
He said the exercise would provide an opportunity for Teleport to grow its unique logistics ecosystem alongside Delivereat, which has carefully developed an extensive and cost-competitive delivery network over the last nine years.
Nio is the better way to profit from China’s growing market for electric cars
Two of the most popular stocks on the planet right now are electric vehicle manufacturers Nio and Tesla. Together, they trade about 200 million share daily, thanks in large part to young individual investors hungry for a piece of the action.
The House of Representatives on Wednesday unanimously passed a bill that threatens to delist Chinese companies such as Alibaba Group Holding and JD.com from U.S. exchanges unless U.S. regulators are able to inspect their financial audits within three years.
Of the China-related measures introduced in recent months, the bill could have the broadest impact on investors’ portfolios—though the logistics to implement the measures likely means the fallout won’t be sudden or as drastic as it may sound.
Southeast Asian stocks, hit particularly hard by the shutdown of tourism and other service industries, are making a comeback as optimism grows over a return to travel.
The MSCI Asean Index has surged 14% in an eight-day winning streak, almost double the 7.4% rally in the MSCI Asia Pacific Index over the same period. At its highest since March, the gauge of Southeast Asian shares has narrowed the gap with its peers but still remains down about 14% for the year. The broader Asian gauge is up 8%.
Investors are jumping on Southeast Asian stocks as part of a global rotation into value and out of growth sectors after positive results from a Pfizer Inc. vaccine boosted sentiment.
Governments across the region are looking to ease social distancing measures, with Singapore and Hong Kong announcing Wednesday they will start an air travel bubble replacing quarantine with Covid-19 testing from Nov. 22.
“The vaccine news opens up sectors under great stress like airlines and hotels, ” Leon Goldfeld, head of multi-asset solutions for Asia Pacific at JPMorgan Asset Management, said in a press briefing Wednesday, speaking about the wider trend. “What we’ve seen is a massive rotation in the market from growth to value.”
The value rotation will likely last three to six months and has “some room to run, ” he added.