The last several weeks have been a tough time for just about every sector of the market. While there have been some individual stock winners, every major sector is down and down sharply. Some groups have held up better than others, but no area has been spared. We’ve written a lot over the years about how semiconductors are the lifeblood of the 21st-century economy. Semis are ubiquitous in every facet of our lives and in this stay-at-home and work-from-home world the COVID-19 outbreak has thrust upon us, the statement has never been more true.

At the same time that semis have seen a more prominent role in the economy, oil, which was arguably the life-blood of the 20th-century industrial economy, has seen its role diminished even more than it had already been. With everyone working from home, there’s barely a car on the road. Just look at this chart showing the speed of evening commutes across US cities during the week of 3/20 relative to the week before. Commute times are faster in just about every major city and in some cases much faster. Keep in mind too that this is data as of 3/20, and there are even fewer cars on the road now.

Given the acceleration of an already emerging trend, we wondered how this shift has been showing up in the market. Since the S&P 500’s record high on 2/19, the SOX index of semiconductor stocks has dropped just under 20%. That’s a pretty horrific decline in such a short period of time, but it’s less than half of the decline of the Energy sector which is down over 40%! The chart below compares the relative strength of the Philadelphia Semiconductor Index (SOX) to the Energy sector going back to the early 1990s.In the chart, a rising line indicates that the semis are outperforming energy, and vice versa for a falling line. On the right side of the chart, we have also enlarged the period since the start of 2019 so you can see more detail.

What’s really notable about this chart is that in just the last two weeks, the relative strength of the SOX has hit a record high after first overtaking the prior record high from March 2000. Just a few months ago, it seemed like it would be years before the relative strength of the SOX would ever eclipse the record high it made at the peak of the dot-com bubble. At that time, no one would have guessed that the catalyst for taking the SOX over the hump would be the swiftest bear market in history!  

(Click on image to enlarge)