The global stock market volatility is an obvious topic this week – what it means, what implications are there for industry and global economies, and what the impact will be on our industry. Granted, if I had the definitive answers to any of these questions, I’d be sitting on a mountain in Greece and have the title “Oracle.” Caveat in place, there are serious questions that demand some thoughtful comment.
While the last many days have presented extreme swings in major stock markets, triggered by China’s economic weakening, downgrades in GDP, and the Chinese stock market plunge, as discussed by NPR, this is not the moment to believe that the proverbial other shoe is dropping and that we will be back to the 2008 global recession. The recent rebounds are coming along almost as quickly and should give additional confidence to businesses and consumers. However, the trepidations and the tentative positions that have become the norm since 2008 are likely more entrenched by the recent swings.
There are significant differences between the underpinnings of the 2008 global recession and the current situation, despite the rapid drops and market uncertainty sentiment that is shared. Importantly, the 2008 recession, at its core, was about lending and borrowing issues, not about equity re-balancing as we see in global stock markets currently. Certainly, it is not a positive sentiment for economies nor, therefore, for industries during a critical third quarter. However, what we should NOT expect is that things will go from bad to worse, at least not for the global picture. The proof is the rebound witnessed even by the end of the day Monday, Aug. 24th and again during Tuesday’s trading day. The U.S. markets are rebounding, not in toto, but not without serious sighs of relief either. China is, however, another matter.
What does the stock market and global economic volatility mean for the global semiconductor sector and electronics industry in advance of the heavy consumer purchasing cycles? Well, it depends. Yes, that is a hedge, but an honest one. It depends because while we do see some companies pulling back on their forecasts and already alerting suppliers of sourcing reductions, we also see a wide number of companies holding steady with forecasts and proceeding as anticipated, at least in regards to purchasing and sourcing. That hold pattern doesn’t come without a caveat either. Across the board, it has been a far leaner year than anticipated and most certainly down compared to last year. So, by and large, the companies who are holding to their forecasts already have reduced positions.
For the consumer market, the ramifications of the present global volatility will truly depend on geography. It is obvious that those consumers in China will be feeling even more conservative with purchases for the remainder of 2015, and perhaps the European Union (EU) and U.S. consumers will exhibit more caution than originally anticipated before the recent tumbles. However, the bounce that we already see in the EU and U.S. markets should underscore that the volatility we see is truly an equity alignment and part of longer term market cycles, which will have up to 30 percent re-adjustments, not a fundamental flaw and foreboding a crash.
As NPR summed up the situation: “So investors have to decide: Is this selling wave a short-term correction? Or is this the start of a long lingering bear market?” The answer to those questions is really the key to the real forecast for the U.S. and EU markets, and hence, to the semiconductor forecasts for the remainder of 2015, thus far. Holding steady is a sage position regardless, but the sky is unlikely to be falling.
Lisa Ann Cairns comes to EPS with a diverse background that includes 10 years of hands-on experience in IT as well as in semiconductor and electronics distribution. Lisa has a Ph.D. and A.M. in Linguistics from The University of Chicago, during which time she was awarded the prestigious National Science Foundation Doctoral Dissertation Research Improvement Grant. She holds a B.A. from Hofstra University, where she was Hofstra's first woman undergraduate to be awarded a Fulbright-Hayes Grant for independent research prior to attending graduate school. Lisa is currently consulting and freelance writing and can be reached at email@example.com.