Fed Cut Fuels Support For Chip Stock As Market Rally Pushes Forward

In the wake of the Federal Reserve’s decision to begin cutting interest rates, U.S. chip, and associated technology stocks helped fuel the market rally, with major U.S. indices closing the trading session on a higher note following the central bank’s jumbo rate cut of half a percentage point. 

On Wednesday, September 18, the benchmark S&P 500 (SPX) ended the session higher at 1.50%, with the Dow Jones Industrial Average (DJI) registering a 1.12% increase, with technology stocks leading the session, and the tech-heavy Nasdaq Composite (NASX) adding 2.35%. 

Similar session performances were registered on Thursday, with Wall Street absorbing the central bank’s positive news and forward-looking prediction that the U.S. economy is steering clear of a possible hard landing. 

By market close on Thursday, the S&P had registered another record high, while blue-chip stocks and the Dow Jones ended the trading session above 42,000, a first for the index. Tech stocks continued their strong delivery, with the Nasdaq Composite leading the gains, and adding 2.50% during the session. 

Major technology stocks were among the heavy hitters. iPhone maker Apple (AAPL), along with Meta Platforms (META) ended the session with a 3% gain on September 19. Similar performance was seen with Amazon (AMZN), Alphabet (GOOGL), and Netflix (NFLX) which gained 1% and 2%, respectively. 

American semiconductor, and Wall Street sweetheart Nvidia (NVDA) gained a robust 5.15% during a post-Fed meeting trading session on Wednesday. The strong turnaround comes roughly two weeks after the company’s stock had plunged by nearly 9%, which wiped $279 billion of value, and marked the biggest single-day market capitalization drop in U.S. stock history. 

As optimism continues to warm up the equities market, and a stock rally pushes longer into September - a month that’s notorious for delivering weaker gains compared to other times of the year - traders could be hoisting further support for chip and tech stocks as the sector begins to see a rebound following several months of performance. 

Chip Stock Winners 

Advanced Micro Devices 

Investors big and small have been adding shares of Advanced Micro Devices (AMD) and the recent reaction to the central bank’s monetary policy changes has only further helped boost stock favorability. Since the rate cut announcement the company’s stock has gained 5.70%, and registered a 3.80% surge in single–day trading on September 19. 

AMD has been seeing growing support coming from all corners of the market, even long before the recent stock market surge. During the second trading week of September, Cathie Wood’s Ark Invest bought $6.9 million in AMD shares on the back of Oracle’s (ORCL) that AMD is looking to begin aggressively moving into the artificial intelligence (AI) and Graphics Processing Units (GPU) gaming sector. 

AMD is not only rising to the occasion but has become strong competition for other names in the market, especially for Nvidia. AMD is seeking to capture roughly 40%-50% of the mainstream GPU market, according to Oracle. Coming off a strong second quarter of performance, AMD might be in a position to experience further blowouts before the close of the year. 

Texas Instruments 

Texas Instruments (TXN) is still coming off a high note following its improved financial trajectory and better-than-expected second-quarter results. Strategic improvements have helped the company address financial pain points, which have allowed it to create more sustainable growth. 

Company stock has delivered modest performance this year, registering a 22.65% year-to-date improvement. On closer inspection, TXN gained a steady 3.37% on September 18. Since the Fed’s rate cut announcement, stocks have added 3.43%, and analysts are expecting TXN to continue moving the needle. 

Right on the back of recent improvements, the company has announced news that it will be increasing its quarterly dividend by 5%, raising the cash dividend from $1.30 to $1.36 per share, and resulting in a lift of its annualized dividend of $5.44 per share. On the more negative side, analysts are expecting a sales decline, however, improved financial footing could help support future dividend payments. 

ASML Holding NV

Another winner of the Fed’s announcement was ASML Holdings (ASML) which has largely struggled throughout much of the year, as an overall slowdown in the semiconductor market, manufacturing issues, and export restrictions have added major blows to the company’s stock performance. 

However, things are starting to look up for ASML. The stock recently gained 6.50% in a single trading session and has continued to deliver strong performance in reaction to the Fed's rate cut decision. 

On a year-to-date trajectory, stocks have gained roughly 15.52%, which is somewhat uplifting considering the stock is still down by 25% from its peak in July. Investors will keep a close eye on forward-looking price movements. In general, ASML is more sensitive to economic changes, seeing as it sells equipment that's generally priced at a higher price point compared to other leading market competitors. 

A deeper dive into the company’s consolidated tech stacks for IR (investor relations) reveals that strategic changes to its business strategy could help bolster trader sentiment. ASML still has a long way to go before making up for previous losses, however, at the current pace they could become a better option to consider against contenders such as Nvidia. 

Analog Devices

Analog (ADI) is up by more than 20% year to date and over 32% in the last 12 months. The company has recently been on analysts' radar following a strong second-quarter earnings announcement, which saw the company significantly improve its financial position in an overheated market. 

ADI has been riding on the high of the recent rate cut, with shares soaring by nearly 11% in the two days following the Fed’s meeting. The strong reaction places more emphasis on ADI to rally going into the new year, and further bolstering investor sentiment against the backdrop of improved market stability. 

More than this, CitiBank analysts have recently lowered its risk assessment on ADI following the company’s improved financial earnings. The reduced risk adjustment could help place ADI in a more favorable position against other analog names. 

ON Semiconductor

Arizona-based chip company ON Semiconductor (ON) is rapidly becoming a Wall Street favorite, as advancements in artificial intelligence are helping position the company as a leader in the market, and a trusted supplier of advanced semiconductor components. 

During the week of the Fed’s rate cut announcement ON opened lower on the market, but during the post-rate cut trading, stocks surged over 6.06% and added to the wider chip and associated tech stock rally. 

Based on its recent earnings announcements, several analysts tracking the stock have raised forward-looking price targets and placed a “Buy” rating on the stock. Analysts further added that the company’s refreshed management structure could help ON have improved product development, and a more sustainable cost management approach in a relatively volatile market. 

A Rally Worth Chasing 

Based on the recent news, Wall Street continues to ride on the euphoria of improved market optimism. The Fed’s jumbo rate cut decision brings perhaps a fresh perspective for investors that economic conditions are beginning to improve, and that the U.S. economy is veering away from a possible hard landing. 

With a strong rally underway, and investors turning bullish again on chip and technology stocks, the turnaround could bring much-needed support for a corner of the market that has largely been beaten down by aggressive interest rate hikes, slower consumer spending, and sticky inflation. 

Investor’s pent-up reaction to the rate cut decision and a changing monetary policy places the spotlight on how resilient U.S. markets have been throughout the higher rate environment despite seeing wider uncertainty loom ahead.