$2T stimulus deal helps prop up semi stocks (fingers crossed)

US Capitol at night
A Senate deal early Wednesday on a $2 trillion economic stimulus may help markets to continue an upward climb. (Getty Images)

Semiconductor stocks improved on news of a $2 trillion stimulus package to jumpstart a U.S. economy battling the coronavirus pandemic.

U.S. Senators announced a deal early Wednesday that still needs final approval. It reportedly includes $250 billion for direct payments to individuals, $350 billion in small business loans, $250 billion in unemployment insurance benefits and $500 billion for loans to distressed companies. Airlines would get grants as long as they avoid layoffs, according to sources that spoke with CNBC.

The deal had already appeared to be heading to reality early on Tuesday, which helped the Dow finish the day up at 20,704, while the Nasdaq was up to 7,417, or an 8% improvement. Shortly after the markets opened Wednesday, the Nasdaq was up by 1.2% and the Dow was up by 2.5%

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A group of 30 semiconductor stocks in the Philadelphia Semiconductor Sector Index finished Tuesday at $1,491, up by more than 11% for the day, but well below a high mark of $1,979 on Feb. 19. Shortly after the market opened Wednesday, that index rose nearly 2%.

Analysts have been following several semiconductor makers that are responding to the virus with their own financial moves. Intel, a major player, was flat on Tuesday, ending the day at $52.40, following a month of ups and downs. On Jan. 24, well before the virus affected the U.S. and much of the globe, Intel sold at $68.47. Early Wednesday, Intel was trading higher, up less than 1%

Intel early Tuesday filed a report to the U.S. Securities and Exchange Commission that said, “It is likely that the current outbreak or continued spread of COVID-19 will cause an economic slowdown and it is possible that it could cause a global recession.” The company noted it has modified its business practices including employee travel. “There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and our ability to perform critical functions could be harmed.”

The more relevant financial move that Intel filed with the SEC was that it was suspending stock purchases due to the pandemic. Last October, Intel announced plans to repurchase $20 billion in shares over 15 to 18 months. Intel had repurchased about $7.6 billion in shares in the fourth quarter of 2019 and the first quarter of 2020, prior to the suspension.

President Trump and a group of U.S. Senators have been especially critical of companies that have used tax savings approved in 2017 to buy back their own stock instead of investing in expansions and hirings. President Trump said in a briefing on Tuesday that he hoped the $2 trillion stimulus plan with loans to business includes language opposing buybacks and executive salary increases.

In another example analysts are watching, Microchip Technology reported it will exchange $615 million in notes for cash and 3.1 million shares. After making the announcement, Microchip saw shares rise nearly 10% on Monday. On Tuesday, its shares rose another 15% to $75.72. 

Nvidia has experienced one of the most dramatic climbs in stock price, from $182 a share on March 18 to $249.18 at the close on Tuesday. Early Wednesday, its stock continued to rise more than 3%.

Apple, which produces chips as well as finished electronics like the iPhone, saw its stock up early Wednesday by 3% or more, but the price has been down 15% for all of 2020.

The final details in the $2 trillion stimulus plan won’t be the only factor affecting semiconductor performance, of course, and much depends on how long the coronavirus impact lasts. President Trump said Tuesday he wants to see some parts of the country outside of affected areas like New York back in business by Easter, which is April 12.

“Everything depends on the virus,” said James Bullard, CEO of the St. Louis Fed, in a CNBC interview on Wednesday morning. The third quarter will be a “transition quarter” for markets and the overall economy, he said.

RELATED: COVID-19 easing in China as lockdown lifts

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