Don't Give Up on the Semiconductor Rally

Almost everything has been working for investors in 2026. But one group has delivered higher returns than any other...

From late March to late June, semiconductor stocks more than doubled. As a result, they became an outsized portion of the overall market.

Now, though, the trend is reversing. It took less than a month for semiconductors to enter a bear market.

Does that mean the boom is over? Not quite.

History tells us that this kind of quick reversal isn't a reason to sell. Instead, it could mean a 19% rally over the next year.

Let me explain...

A Quick Bear Market Means a Reversal Is Coming

The semiconductor industry is known for its volatility. It's a boom-and-bust sector... which means huge price swings aren't unusual.

Still, the price action this year is far from common...

Again, the sector had shot up more than 100% in less than three months. Then, in just a few weeks, the group dropped 20%, entering a bear market.

In the chart below, you can see semiconductor stocks' performance over the past year, as measured by the benchmark Philadelphia Semiconductor Index ("SOX")...

Semiconductor stocks were already in a healthy uptrend in January. The gains heated up in April, though. From there, semiconductor stocks nearly doubled in less than three months.

But by late June, we saw rapid selling and a lightning-fast 20% decline.

That kind of quick sell-off is only somewhat rare for this boom-and-bust sector. Over the past 32 years, we've seen 21 other 20%-plus falls in a month or less.

Surprisingly, it's not the bad omen you might expect. Here's what happened after similar falls since 1994...

Semiconductor stocks have seen incredible returns over the past three decades, compounding at 15.5% per year. But you can do better if you buy them after a quick bear market...

Similar setups led to gains of 6.9% in six months and 18.6% over a year. That's minor underperformance over six months... but solid outperformance over a year.

Interestingly, this has only led to winning trades 67% of the time over the next year. But since mid-2002, this setup hasn't led to a single losing trade... And the typical one-year return since then is a staggering 43%.

Now, semiconductor stocks aren't guaranteed to reach new highs again soon. But in recent memory, buying after quick bear markets has been a smart move.

And even after the recent drop, this group is still in a long-term uptrend. Plus, you can see in the chart above that prices have already begun reversing since the late-July low.

That means it's not time to give up yet. Instead, it's wise to treat this as an opportunity to buy.

Good investing,

Brett Eversole