The Semiconductor Sector Is in the Spotlight The semiconductor market is all over the news. And based on this week's geopolitical headlines, I'm not surprised. Today, I'm going to take a look at what's going on in the sector and what it means for investors. The latest global tensions are just part of a shift that has already started for this industry... And some stocks out there could see big gains based on what's shaping up. Then, I'll focus on the market's reaction to the recent jobs report. As you'll see, it's not what you might expect – and that tells us a lot about the typical investor's mindset right now. Let's get to it... Headline No. 1: The U.S. and Japan will set up a next-gen semiconductor research hub. McCall's Call: Semiconductors – often referred to as "chips" – are the little engines that power the electronics we use daily. They're in your computers, smartphones, cars, and so much more. And most of them are manufactured outside the U.S. Taiwan is a leading manufacturer of these chips. If you need advanced semiconductors, they'll probably come from Taiwan. And they'll most likely be made by industry leader Taiwan Semiconductor Manufacturing (TSM). That's one of the reasons why House Speaker Nancy Pelosi recently visited the island to show U.S. support for its independence. It's critically important that these chips continue to flow out of Taiwan. But China is not pleased with her visit... Just after Pelosi's departure, China fired at least 11 missiles into the sea around Taiwan. These were some of the first Chinese strikes so close to Taiwan's mainland in 26 years. And the Chinese military said that the "exercises" were a warmup for a bigger show of force. Tensions are clearly heating up in the South China Sea. That's why the U.S. government passed the CHIPS Act just a few weeks ago to support domestic production of semiconductors. The world is realizing that its supply of chips from Taiwan could be disrupted soon. It's also why the U.S. and Japan are teaming up to form their own semiconductor research hub. The two countries have agreed to invest in advanced chip production and to develop a robust supply chain. Their goal is to compete with the advanced chips from Taiwan Semiconductor as soon as 2025. It's a tall order, but if they throw enough cash at the problem, it's possible. This should be good for chip manufacturers in the U.S. and Japan. These companies are positioned to get additional funding and support from their governments. Some firms you can add to your watch list are Intel (INTC), L3Harris Technologies (LHX), Microchip Technology (MCHP), and NXP Semiconductors (NXPI). And just to note, a few of these companies have multiple manufacturing locations. There's a lot going on in this sector right now. And it's still too soon to know how the situation in Taiwan will shake out. But we could see great opportunities to profit in the future. So for now, I'm watching this situation develop. And as always, I'll keep you updated here in Daily Insight. Headline No. 2: Nonfarm payroll additions doubled estimates in July. McCall's Call: Even with all the recession headlines we've been seeing, the job market has been a bright spot in the economy. In July, the economy added 528,000 jobs, according to the U.S. Bureau of Labor Statistics' nonfarm payroll report. That's up from 372,000 in June and more than double the estimate of 258,000 jobs. And the unemployment rate fell to 3.5%, hitting the lowest level since February 2020. Wall Street and the financial media have been watching the job market closely. This part of the market has been one of the parts of the economy, along with consumer spending, that's still going strong in today's inflationary and slower-growth environment. So far in 2022, the economy has added nearly 3.3 million jobs. Since April 2020 (when jobs declined by the millions because of COVID-19 lockdowns), the economy has added 22 million jobs and payrolls are back above pre-pandemic levels. You'd think that strong jobs numbers should be a good sign for the economy, especially when we saw 22 million jobs lost in two months at the start of the pandemic. But that's not the way markets took the release this morning. S&P 500 Index futures fell more than 1% immediately after the release. Stocks have recovered a little as investors digest the full report and not just the headline number, but the S&P 500 is still down slightly. These days, a strong labor market means that the Federal Reserve will keep raising interest rates to cool the economy and slow inflation. Right now, markets are pricing in an almost 70% chance of another 75-basis-point hike at the Fed's September meeting (up from a 34% chance yesterday). While the central bank has already raised rates 2.25% this year, some Fed speakers have called for continued rate hikes to 4% or higher. As a result, we've entered the "good is bad and bad is good" cycle. Investors want to see news and data points that suggest the Fed will take its foot off the gas when it comes to rate hikes, even if it signals a weaker economy. And strong data – like the jobs data from this morning – will push some investors to sell as volatility kicks in. For now, I think it's best to see how this news plays out from here. Here's to the future, Matt McCall
Editor, Daily Insight
August 5, 2022 Did You Miss My Latest Podcast Video? On this episode of Making Money With Matt McCall, I sit down with legendary investor Jim Rogers. He's one of the most recognizable figures in the investment world, known for his success and around-the-globe adventures. We talk about Jim's latest call on the markets... and it's a big one. Jim and I have an animated debate about his latest prediction. Plus, he shares the one country that he's investing in today. You don't want to miss this episode. | 
