{"id":27377,"date":"2026-05-29T07:30:00","date_gmt":"2026-05-29T11:30:00","guid":{"rendered":"https:\/\/jeffclarktrader.com\/market-minute\/?p=27377"},"modified":"2026-05-28T14:35:38","modified_gmt":"2026-05-28T18:35:38","slug":"chips-are-cooked-the-semiconductor-warning-sign","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/chips-are-cooked-the-semiconductor-warning-sign\/","title":{"rendered":"The Semiconductor Sector Is Due for a Pause"},"content":{"rendered":"\n
The stock market\u2019s hottest sector looks ready to take a break.<\/p>\n\n\n\n
The semiconductor sector has been leading the market higher for all of 2026. SMH \u2013 the VanEck Semiconductor ETF \u2013 is up 80% so far this year, versus a 10% gain in the S&P 500.<\/p>\n\n\n\n
Now though, the chip stocks are overbought and overextended to the upside. They\u2019re likely to decline or consolidate for the next few weeks while the lagging sectors of the market play a game of catch-up.<\/p>\n\n\n\n
That\u2019s not a popular opinion, of course. Most Wall Street analysts are tripping over each other raising their price targets on the chip stocks. Investors are throwing fresh money into the sector. Just about everyone thinks the boom will continue.<\/p>\n\n\n\n
Maybe it will. No one really knows for sure.<\/p>\n\n\n\n
But, before you go and chase stock prices higher into extremely overbought conditions, consider this\u2026<\/p>\n\n\n\n
Relative to the S&P 500, the semiconductor sector is trading at its highest level \u2013 ever.<\/p>\n\n\n\n
Look at this ratio chart comparing the performance of the semiconductor sector ETF (SMH) to the S&P 500\u2026<\/p>\n\n\n\n<\/figure>\n\n\n\n
The higher this chart is, the more expensive the semiconductor sector is to the S&P 500. As you can see, from a relative value perspective, semiconductor stocks are more than twice as expensive as they were during the dot-com boom.<\/p>\n\n\n\n
When a rubber band gets stretched this far one of two things has to happen\u2026<\/p>\n\n\n\n
Either the S&P needs to rally to catch up to the semiconductors. Or, the semiconductors have to decline to come back in line with the rest of the market. Or\u2026 some combination of those two.<\/p>\n\n\n\n
Either way, the upside in the semiconductor sector is limited from here and the downside is substantial.<\/p>\n\n\n\n
Some folks will argue we\u2019re in a new paradigm. The semiconductor industry is fueling the growth of artificial intelligence. We\u2019re in the early innings of the game. The higher relative value is justified. It doesn\u2019t make any sense to compare it to valuation levels from 25 years ago.<\/p>\n\n\n\n
That\u2019s a fair argument. So, let\u2019s look at just the past year\u2026<\/p>\n\n\n\n<\/figure>\n\n\n\n
The relative value of SMH to the S&P 500 is twice the level at which it was trading this time last year. This condition, along with the unbridled enthusiasm investors and analysts are showing for the sector, creates a vulnerable situation. The semiconductor stocks are overbought and over-loved. They\u2019re due for at least a pause, if not something more dramatic.<\/p>\n\n\n\n
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