Charles Dow was a journalist in Springfield, Massachusetts who used to go door to door asking shopkeepers how business was going in order to report on the economy. Most of them told him that their business was none of his business. He thought there must be a better way. So, he moved to New York and began using information from the stock exchanges. He published an afternoon letter (later to become the Wall Street Journal) that contained an average change in price of twelve stocks from various industries. The Dow Jones Industrial Average was born. Getting a gauge on how major transportation and industrial companies were doing provided great insight into the economy at large. The old transportation index (a segment of the Industrial Average) consisted of railroads and shippers and was closely monitored by economists, traders, and eventually the general public. The index still exists today but now includes things like airlines, trucking companies, and even Uber. The transportation index is less relevant now because of the rise of the digital economy. What many consider to be a better measure of today’s economy and the new “transportation index,” is the semiconductor sector. In today’s economy goods and services are delivered via routers, not railroads.
The semiconductor fund, SOXX was looking like it had peaked and was rolling over a few months back. Semis were major leaders during this entire bull market up until last summer when financials and other industries stepped up as money rotated. But just as we have seen many times throughout history, people get very bearish and bet that the short-term weakness in front of them is the sign of a new extended downtrend only to have the markets rip in their face and continue their longer-term uptrends. The SOXX is up over 40% from the April lows. Bellwether Nvidia is up over 60% in that time. Where Nvidia goes, so goes the rest of the semiconductors. Their earnings reports have become some of the most important dates on the economic calendar. Betting against them seems to be a fool’s errand given their track record over the last several years. After their latest earnings report the stock jumped 6%. That’s over a $200 billion increase in valuation in a matter of minutes. You can’t have computers and technology without chips and they are the biggest and best chipmaker. So, for economists and others interested in how tech stocks are doing or looking for insight into the health of the economy, their eyes will be on Nvidia and the SOXX.
Sector rotation continues to be the lifeblood of a bull market and further rotation back into semiconductors, and technology more generally, would be consistent with the next leg up of the current bull market. Seeing technology lead again also gets us back to more of a normal market feel. The tariff ordeal has pumped a ton of noise and fear into the markets over the last few months, but just recently we have started to see stocks trading on their own merits again and less on macroeconomic headlines. The fear gauge (VIX) is still elevated compared to pre-2025 norms, but that seems to be part of the new normal in today’s political climate. Risk is definitely still out there but it feels more defined and more manageable lately. In the absence of a recession (and in the the longer-term more generally), economies grow and stocks go up, usually on the back of technological advancements. Just as Charlie Dow did, we will continue to keep an eye on the components of major industrials that offer insight about that growth and those advancements for guidance.