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What will next week bring? It is an excellent question, especially given how this past one ended. The market, for the most part, seems to be expecting that something terrible shall happen. I still can’t put my finger on what that is, because my crystal ball doesn’t look nine months out.

Micron

Perhaps we can get some better clarity this week when Micron reports results. It was in September after Micron’s results when the wheels started coming off the equity market. It was then the company warned of slowing growth and higher cost due to tariffs.

The company last reported results on September 20. On that date, the Russell 2000 and Micron were both up 12% on the year. It was from that point on that things fell apart. Micron’s stock now down 17% on the year and the Russell is down 8%.  The S&P 500 soon began to fall and has now dropped more than 2% on the year.

MU data by YCharts

A Barometer?

Could it be that Micron is a barometer for the health of the market? Who knows,  anything is possible. Chips are used in so many products today that Chips could be a leading indicator of economic health. Think about all the devices in your home that have chips in them.

Interestingly, on September 20 Micron was up 12%, and the Van Eck Semiconductor ETF SMH was up 10%, while the SOXX ETF was up 11%.  Now the SOXX is down about 6% and the SMH is down 7%.

SMH data by YCharts

Commentary

Perhaps most important will be what impact the tariffs are having on Micron’s business. This what Micron said last quarter:

We expect gross margins to remain very healthy in the fiscal first quarter, although lower than fourth quarter levels, and our gross margins will also be impacted in the near-term, by the announced 10% tariff on $200 billion of imports from China, which will go into effect on September 24th. We are working to gradually mitigate most of the impact from these tariffs over the next three to four quarters.

It will be all about the commentary Micron gives about tariffs and the impact they are having. A sign that the effects from the tariffs are diminishing may signal a market rebound. If the effects from the tariffs have grown worse, then perhaps there is more downside risk.

The Fed

We will also get the Fed meeting this week, and that to will hold a considerable amount of weight on the direction of the market. That comes on December 19.

By the way, Micron reports on December 18 after the close of trading. So December 19 may be the day we pivot higher or pivot even lower.

Yeah, just when you thought it couldn’t get any worse, there is a chance it might get much worse.

Mike

Photo Credit Via Flickr

Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results

micron, stocks, stock market, chips