AMD, semiconductor stocks may be bouncing, but they still face trouble ahead


Intel‘s interim CEO, Robert Swan, told CNBC last week that a number of global concerns are leading his company to reduce its 2019 outlook.

“Some geopolitical dynamics … are going to weigh on ultimate consumers and enterprise desires to buy, and that’s whether it’s U.S.-China trade, whether it’s the U.S. government shutdown, whether it’s Brexit,” Swan said on “Squawk Alley.” “As we enter 2019, we just see a little bit of cloudy macro and geopolitical dynamics.”

Intel stock was rising Wednesday, along with the sector though it is down 2.2 percent in the past week. NVIDIA fell hard on its lowered forecast, and is down 9.8 percent in the past week, while up 2.3 percent Wednesday.

Texas Instruments, KLA-Tencor, Micron and Xilinx were all trading higher.

“You’re going into the weakest season for end demand. That’s the March quarter. That’s when you’re going to have customers burning off any inventories they had,” said Niles. “You have a lot of customers buying products in advance of the off-chance that tariffs for China went up from 10 to 25 percent. You have customers sitting on more inventory than they normally would.”

Trade negotiators for the U.S. and China are working towards a agreement by March 1, or new tariffs would go into effect. Niles also said an earlier Chinese New Year this eyar, starting Feb. 5, has also likely pulled business activity forward, making China sales appear better than they are.

“It’s making demand look stronger than it should because demand is getting compressed into January,” he said. “If you listen tot he companies themselves, most of the companies have not said this si the bottom, things are improving. Most of them are saying by the time we get to mid–year, we will be through the worst of it and things should get better.”

Niles said he expects the demand softness to show up after Chinese New Year’s, and that could drive stocks lower.

“I’m back to looking for shorts. There’s a few things that might make interesting longs, but in general when you look at this grop widley, there’s very few things you can be optimstic on at this point form an end demand basis,” Niles said. “On Dec. 24, the risk reward was in our favor.”