Stocks opened modestly lower this morning (Dow flat; SPX -.25%; Nasdaq -.4%). Exchange trade volume is low. The communications services sector is down 1.5%; REITs are down .75%; energy is off .3% and banks are down .2%. Semiconductors are bucking the trend, however (see below). As I mentioned yesterday, The VIX Index has collapsed back to 15; traders are no longer as fearful, but they’re wondering how far this V-shaped recovery can go before the market needs to step back and consolidate. After all, the SPX has now retraced nearly ¾ of its late 2018 correction. Commodities are trading mostly higher—with the notable exception of gold. WTI crude oil is back up around $54.10/barrel and it looks like the path of least resistance is up. Copper is now up 9% on the year, which is odd since China’s economy is said to be losing steam. Further, iron ore is up around a 2-year high and Barzil’s Vale SA (VALE) just warned of a global shortage. That doesn’t square with the consensus narrative that global economic growth is falling. So either global growth is better than we’ve been hearing, or China is pushing fiscal stimulus in a big way this year. Usually those two move together. Bonds are roughly unchanged this morning. The 5-year and 10-year Treasury yields are hovering around 2.50% and 2.69%, respectively.

Microchip Technology (MCHP) reported fourth quarter results which were modestly better than Wall Street projections. More importantly, the company’s CEO said, “…we do see a bottom forming” in the global semiconductor market. Barring an escalation of the US-China trade war, he believes this quarter will mark a cyclical trough. The Philadelphia Semiconductor Index (SOX) fell 26% from March 12th through December 24th of last year, signaling a bear market. Since then, the index has retraced about 75% of that decline. In other words, investors have already placed their bets that the worst is over for the industry. Not surprisingly, though, the MCHP “bottom” call is boosting the SOX by nearly 3% today. In today’s environment, chip stocks are the purview of traders, not investors.

Disney (DIS) reported mixed fourth quarter results last night. During the quarter, revenue was flat with year-ago levels and earnings-per-share fell 3%. That doesn’t sound great, but Wall Street was expecting less. The theme park business was a stand-out with 5% sales growth and Networks grew revenue by 7%. It looks like ESPN has stabilized as well. Disney is in the middle of a massive shift toward broadcasting its own content via the new online streaming platform Disney+. Management cautioned investors that profits will take a hit as this transition progresses this year. The company needs to spend a lot of money to make it happen. The stock is down 1% today in reaction.

The video game stocks have been taken out behind the woodshed. Electronic Arts (EA) is down 13% today and Take Two Interactive (TTWO) is down 11.5%. These were darlings in 2017 and 2018; no more. EA reported a terrible fourth quarter, badly missing expectations as its new Battlefield V game flopped and industry competition intensified. Until now, the market narrative has been that these are strong long-term investments. Now it is clear they are trading stocks.

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