Why hardware-focused tech stocks surged in July

What happened

Many hardware-focused stocks in the tech sector posted a calm stream of solid gains in July 2022, adding to monthly price increases of 16% or more. Here are three illustrative examples, based on data from S&P Global Market Intelligence.

On the other hand, the S&P500 (SNP INDEX: ^GSPC) the stock market index increased by 9.1% during the same period. The S&P 500’s biggest one-day move was a 2.7% gain, which fell on the same day as peak performance from Corning and Skyworks.

So what

The hardware stocks listed above floated higher in July without making any headline-worthy waves. I’m not saying they practiced total radio silence. Two of the three companies released quarterly results in July, and their press departments produced the usual volume of product announcements and partnership deals. It’s just that none of these company-specific developments fueled the fires under these actions last month.

For example, the US Federal Communications Commission (FCC) opened another auction for 5G wireless spectrum licenses towards the end of July. This is great news for Skyworks, whose signal processing chips are found in 4G and 5G base stations and end-user devices around the world. But the stock rose just 1.1% that day, lagging the 1.5% jump in the S&P 500.

Cable and antenna maker Amphenol also announced its results on the same day. The company posted double-digit percentage gains in revenue and profit over the prior year period. The results also exceeded Wall Street expectations across the board. The report triggered Amphenol’s biggest one-day jump of the month, but that event still accounted for less than half of the stock’s monthly gains.

Glassware veteran Corning reported strong second-quarter results earlier this week. Sales and earnings were broadly in line with expectations, but the third quarter forecast was modest due to inflation concerns and weak demand for products such as smartphone screens, car windows and solar panels. Investors shrugged off the somewhat gloomy forecast and sent stock prices up 2.9% on the day, while the S&P 500 rose 2.6%.

Again, these individualistic events weren’t the main focus of this trio of July jumps. The hardware experts on my list had made massive price cuts in the first half of 2022, setting them up for dramatic rebounds at the slightest hint of positive market news.

GLW given by Y-Charts

Now what

The relentless downward pressure of early 2022 turned into mild optimism in early July. Later in the month, the mood improved further due to a trickle of positive earnings reports and economic measures. The same growth stocks that had suffered severe price declines in the previous six months were poised to rebound. That’s the big backdrop behind July’s blistering returns for investors from Corning, Skyworks and Amphenol.

Will the higher prices hold or are we waiting for the bear market to resume? Only time will tell, of course, but the root causes of the first-half price declines are starting to fade. Core inflation rates have eased slightly over the past three months, the semiconductor industry is showing signs of a healthier manufacturing pipeline, and shipping costs have started to fall again. Otherwise, the US government is taking action to support the household semiconductor industry and related businesses. This doesn’t happen every day (barely every ten years), and these three hardware stocks stand to benefit from this initiative.

The uptrend could still encounter another problem, but things are moving in the right direction. The hardware makers on my list can be considered canaries in the coal mine, currently chirping up a storm to show off their excellent health.

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Anders Bylund has no position in the stocks mentioned. The Motley Fool recommends Corning and Skyworks Solutions. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.