Critical technology
Call it a trade war, a tech war, or even a chip war, but the fight between the world’s two largest economies is ratcheting up to the next level. China has unveiled a set of national security restrictions that are likely to further disrupt the global supply chain by placing export controls on metals like gallium and germanium. The ingredients are key to semiconductors, electric vehicles and aerospace manufacturing, with shares of rare element players like AXT (AXTI) and MP Materials (MP) rising about 9% on the news premarket. Any broadening of the restrictions could be even more problematic, with China stepping up countermeasures if the U.S. imposes more tech curbs.
Backdrop: Last summer saw the passing of the CHIPS Act, which allowed the federal government to pour billions of dollars into the semiconductor sector to “lead the world in future industries and protect national security.” The Biden administration followed up with serious export controls to prevent American firms – or any global company that uses their tech – from selling chip designs, software and equipment to Beijing (it also prohibited U.S. nationals from working with Chinese chip companies to slow their technological advances). As it looks to isolate the country, the U.S. even lobbied the Netherlands and Japan to curb exports of certain advanced chipmaking equipment, though some analysts still believe that time is on China’s side (also read how semiconductors play into the situation in Taiwan).
Chips are used in just about everything today, making the modern economy possible, but the bigger concerns here are those used in sensitive military technologies. The most advanced integrated circuits let nations stay far ahead of their rivals in terms of weapons systems and intelligence gathering, and more broadly, are a statement of geopolitical power. As China grows its influence, the country has been making strides towards producing its own advanced chips, and has even surprised the U.S. with its latest military developments. Remember the Chinese hypersonic missile test that went around the world in 2021?
To the rescue? Treasury Secretary Janet Yellen, the top U.S. economic policymaker, will head to China tomorrow, just weeks after Secretary of State Antony Blinken visited the country. Ahead of the trip, Chinese leader Xi Jinping said he wanted to work with other nations to “reject the moves of setting up barriers, decoupling, and severing supply chains.” “We should make the pie of win-win cooperation bigger,” he added, and “ensure that more development gains will be shared more fairly by people across the world.” Things are increasingly turning sour, however, with the U.S. considering curbs on Chinese companies’ access to cloud-computing services, as well as a new advisory that warns Americans to reconsider travel to Mainland China. (3 comments)
Second half
The stock rally in the last two days of June pushed the broad market out of the historical sweet spot for second-half performance, according to BMO strategist Brian Belski. Investing Group Leader Bret Jensen also says the stock market has become increasingly overbought, with the S&P 500 (SP500) climbing 15.9% in the first half of 2023, and sees a reckoning on the horizon. Over in the bullish camp, SA analyst Michael James McDonald believes the current market rally is not over. “A 5% market correction may occur, but the longer-term uptrend will remain intact until there are more bulls and fewer bears.” (5 comments)
Mustard Belt
Following a weather delay that pushed off the event for several hours, Nathan’s Famous (NATH) Fourth of July Hot Dog Eating Contest got underway Tuesday afternoon on the corner of Surf and Stillwell avenues in Coney Island. Many more watched the ESPN telecast of the event, which has been going on formally since 1972. Defending men’s champion, Joey “Jaws” Chestnut, ate 63 hot dogs during the gluttonous showdown – winning the coveted Mustard Belt for the 16th time – while Nathan’s stock has also had some luck over the past year, rising 36% since July 4, 2022. “The company’s generally solid results are expected to continue into FY 2023,” writes SA analyst Mike Zaccardi, CFA, “with EPS predicted to rise by 45%.”
Yahoo!
One of the oldest internet search giants is planning a comeback two years after it was spun out from Verizon (VZ). Yahoo CEO Jim Lanzone is eyeing an IPO, believing the firm is ready financially following a stint as a private entity that helped it make necessary structural changes. “While the company has had struggles in different points in time, we’re still huge in traffic, and we have our best days ahead of us product-wise,” he declared. Apollo Global (APO) acquired Verizon Media, which included AOL and Yahoo, for about $5B in 2021. (107 comments)
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