UPDATE

🌤️ Happy Thursday

Good morning. We hope you had a great beginning to this week and are looking forward to the weekend. We’re coming to you on a Thursday because our research team wanted to spend some more time getting this issue put together.

Monday was Juneteenth, an important day in American history commemorating the emancipation of enslaved African Americans. There is understandable confusion about the holiday, as some mistakingly believe this was the day slavery in the United States was outlawed.

• In fact, June 19, 1865, was the day that enslaved people in Texas were told by Union forces about the Emancipation Proclamation—passed by President Lincoln 3 years prior. Though the Proclamation legally freed those enslaved in the South, many were not aware of this until after the Civil War ended.

We have a great Explained piece this week and some observations about S&P growth. We hope you enjoy!

Read time: 4 minutes

WEEK IN REVIEW

📈 Market Performance

Federal Reserve via Wikimedia Commons by Dan SmithRdsmith4

In last week’s issue, We Got Here Fast, we mentioned that the FED was widely expected to raise interest rates as it continues to combat inflation. Last Wednesday, however, the FED held rates around 5%. (Source: CNBC)

• As a result, Wednesday seemed to be the most volatile day for the S&P, as the index slipped 0.63% in anticipation of the news before recovering about the same amount in time for Thursday’s market opening.

Except for this brief decline, the S&P 500 was reaching for the stars last week. Midday Thursday, the index broke 4,400 and held around 4,440 points until Friday afternoon. For the record, that’s breaking a new 100-point mark each week for the past 3 weeks.

MARK IT. EXPLAINED

💻 The Power of Chip Manufacturing

Microchips, via UCSD Jacobs School of Engineering

Deep in the East Pacific Ocean, right off the coast of China’s shores, lies a small, unassuming island vital to powering the world’s electronic devices. The island is Taiwan, and their chief export is the semiconductor, a foundational material that conducts electricity not only in our phones and computers, but airplanes, cars, microwaves, and so forth.

• Taiwan Semiconductor Manufacturing Company (TSMC) holds a staggering 55% global market share for semiconductor production, with a figure in the 80-90% percentile for advanced semiconductor production (Source: Time Magazine).

🌏 How do Companies Navigate the Geography?

Taiwan may lie geographically between the United States and China but has also become a point of contention between both countries, particularly because of China’s implicit belief that Taiwan is their territory. For companies like Apple and AMD ever dependent on Taiwanese production, what does this mean?

They hedge their bets. After Speaker Nancy Pelosi visited Taiwan last August, China conducted unprecedented “military drills” near Taiwan soil. That same month, Congress passed the CHIPS and Science Act, incentivizing chipmakers to expand their production of semiconductors to American soil.

TSMC, Micron, and Intel have all followed suit with plans to build manufacturing plants across the country. Meanwhile, companies like HP and Dell have ordered suppliers to build capacity outside of China and Taiwan. Many companies have followed a similar framework, calling their hedge a “business contingency plan” or “geographical diversification.” (Source: Financial Times).

🇺🇸 Recent U.S. Positions

Last October, the Biden Administration imposed aggressive export controls on China, mandating licenses for companies shipping semiconductors to China and banning Americans from employment with Chinese semiconductor companies. With claims that the US is attempting to stifle Chinese innovation to safeguard national security, China has bitterly retaliated with claims of “technology terrorism.”

Multiple reports have hypothesized a Chinese scheme to invade Taiwan in 2025, a frightening prospect for the global electronics supply chain (assuming prospects of war aren’t more frightening.) Recently, the U.S. has not maintained a firm position on Taiwan’s sovereignty, with Secretary of State Antony Blinken stating Monday, “We do not support Taiwan independence,” despite contrasting remarks from President Biden. Nevertheless, it should be interesting to watch how American companies diversify their semiconductor exposure in anticipation of any doomsday scenario. (Source: New York Post).

ONE MORE THING

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Thanks again for reading!

Nothing MARK IT. publishes constitutes professional and/or financial advice, nor does any information published by MARK IT. constitute a comprehensive or complete statement of the matters discussed.