Investors have been looking for signs of danger in the economy over the past few weeks.
We’ve seen some fear creep in as a handful of the most popular stocks on Wall Street pulled back.
And with coronavirus cases picking up, the November election looming and earnings season kicking off this week, there’s a lot of uncertainty.
Now that the market has recovered its initial losses from the coronavirus crisis, many people are wondering…
Should we expect another drop?
Not if you believe the indicator I’m about to show you!
Today, I’ll explain why this “canary in the coal mine” is alive and healthy.
And with this indicator sounding the all-clear, you’re free to continue to grow your retirement wealth through all the opportunities the market has to offer.
What the Semiconductor Industry Says About the Economy
In the late 1800s, Charles Dow developed a theory that helped to explain how different areas of the market trade and how certain industries help predict the direction of the economy.
Dow looked at transportation stocks in particular to determine the health of the economy.
The idea is that if transportation stocks were trading higher, it meant that the economy was strong and other stocks would naturally follow suit.
This made perfect sense at the time and throughout the 1900s, because our economy was primarily driven by manufactured goods then.
If transportation companies like railroads and truckers were doing well, it was an indicator of strong economic demand.
So when transportation stocks did well, the rest of the market naturally followed along.
Fast forward to 2020 and the U.S. economy isn’t nearly as reliant on manufacturing products.
So Dow’s theory has lost some of its popularity. Not many investors expect transportation stocks to predict the market’s direction anymore.
But in today’s tech-driven market, another industry can give us a similar barometer for how the rest of the economy is doing.
The semiconductor industry is just as important to the U.S. economy as railroads were in the late 1800s
That’s because semiconductors are used in just about every facet of life, and they’re directly connected to every part of our economy!
Think about it…
The car that you drive has semiconductors in every sensor, system and display on your dashboard.
When you log in to Facebook, millions of semiconductors are being used to create and transmit the data.
Your smartphone has semiconductors in it. The thermostat in your home has semiconductors in it. Heck, even your washer, your fridge and possibly even your toaster all have semiconductors in them.
So for today’s investors, the semiconductor index is a much more applicable indicator for how our tech-driven economy is doing.
Here’s what it looks like today…
A New High Sounds the All-Clear for the Broad Market
Take a look at the chart below. It’s a chart of the PHLX Semiconductor Index (SOX).
Semiconductors sound the all-clear for the U.S. economy.
Today, investors use the SOX as a much more accurate indicator of how well our economy is doing.
If the SOX breaks down, it means investors are worried about one of the most important areas of the economy.
And more importantly, it’s an indicator that the overall market is unhealthy — kind of like the proverbial canary in the coal mine.
But if the SOX is in a bullish trend, it indicates that the rest of the economy is in good shape. And when the SOX hits a new all-time high, that’s pretty much an indisputable sign of strength!
As we enter earnings season for Wall Street the SOX is telling us that the economic recovery in America is coming along just fine.
Of course, that doesn’t mean every stock will trade higher. There are still pockets of risk that we’ve been talking about here at Rich Retirement Letter.
But it does mean that the overall economy should continue to recover just fine. And with that recovery, there are plenty of opportunities to grow your retirement wealth.
This isn’t a time of fear when it comes to our investments.
The semiconductor index is telling us that the economy is expanding and that technology is at the heart of this growth.
So let’s use this season to help build your retirement so you have the resources to focus on the things that matter most.