Joe Ciolli

As the stock market <a id="670bcdfc-fddd-3448-a795-082fcdd464f6" href="https://markets.businessinsider.com/news/stocks/stock-market-news-dow-down-400-wipes-out-2018-gains-2018-12-1027787357?utm_source=intl&amp;utm_medium=ingest"> melts down </a> , a great deal of attention is being paid to the obvious culprits: <a id="84250456-e81c-3a03-a185-f75fd1defefc" href="https://www.businessinsider.com/bank-stocks-bear-market-sell-off-down-the-most-in-18-months-2018-12?utm_source=intl&amp;utm_medium=ingest"> banks </a> , <a id="d1daf33e-0df5-398f-a899-7f39927daba6" href="https://www.businessinsider.com/oil-price-opec-tries-balance-supply-trump-demands-2018-12?utm_source=intl&amp;utm_medium=ingest"> oil </a> , and President Donald Trump's continued insistence upon ratcheting <a id="b2d4f0a7-7654-31de-aa24-9695c5b0f93a" href="https://www.businessinsider.com/us-china-trade-war-to-persist-after-trump-state-street-investing-advice-2018-12?utm_source=intl&amp;utm_medium=ingest"> trade tensions </a> higher.

But in a less publicized corner of the equity market, selling pressure has raged, driven by an unfortunate confluence of factors. We're referring to the previously dominant semiconductor sector, which can't seem to sidestep a seemingly endless barrage of negative headlines.

The most glaring example on Thursday was the <a id="18f5d99d-d2b3-3fd6-a69e-b1e1e815d3fc" href="https://www.businessinsider.com/huawei-cfos-arrest-could-torpedo-trump-xis-ceasefire-damage-tech-giant-2018-12?utm_source=intl&amp;utm_medium=ingest"> controversial arrest </a> of Huawei chief financial officer Meng Wanzhou. The news rippled through global equities as traders braced for more trade-war tensions. And since Huawei is among the world's biggest producers of smartphones, the chipmaker supply chain took a beating.

In terms of specific semiconductor companies, $23 billion <a id="a0f8cb1f-0960-361f-a134-e5d8a9ff8af7" href="https://markets.businessinsider.com/stocks/lrcx-stock?utm_source=intl&amp;utm_medium=ingest"> Lam Research </a> added to industry-wide pressure on Thursday after its CEO announced he was resigning. Martin Anstice agreed to step down amid an inquiry into alleged workplace misconduct.

But no discussion of semiconductors is complete without the golden goose itself: <a id="69685348-e77b-3a01-a596-e7267c35b98b" href="https://markets.businessinsider.com/stocks/aapl-stock?utm_source=intl&amp;utm_medium=ingest"> Apple </a> . Chipmakers frequently find the fates of their stock prices tied to the latest developments at Apple. And as reports started to trickle in that <a id="ed255aa3-f655-3b08-abd2-576c2180331a" href="https://www.businessinsider.com/apple-stock-set-to-fall-after-iphone-saturation-fears-hit-suppliers-2018-12?utm_source=intl&amp;utm_medium=ingest"> demand for the new iPhone XR </a> was far weaker than expected, chipmakers absorbed heavy losses.

As a result of all that, the wreckage in chipmakers has piled up quickly — and it has been quite severe. The bellwether <a id="05f1e275-c4e0-36e9-a7c6-55ef2102dad9" href="https://markets.businessinsider.com/index/philadelphia_semiconductor?utm_source=intl&amp;utm_medium=ingest"> Philadelphia Semiconductor Index </a> has plunged roughly 18% since reaching a record high in March. For evidence of the sector's dominance prior to that decline, look no further than its 118% return since the start of 2016, through March 12.

On a single-stock basis, beloved companies like <a id="7a301cce-b1f2-3093-a694-2e6cb052c1bf" href="https://markets.businessinsider.com/stocks/nvda-stock?utm_source=intl&amp;utm_medium=ingest"> Nvidia </a> and <a id="6d5aeedb-631b-342e-ae71-cc7c4aef69b7" href="https://markets.businessinsider.com/stocks/amd-stock?utm_source=intl&amp;utm_medium=ingest"> AMD </a> have been unable to escape the carnage. Both stocks were up more than 45% on a year-to-date basis through the start of October, with Nvidia surging more than 200% over the period. They've both since dropped to multiyear lows.

The struggles facing semiconductors are symptomatic of a broad risk aversion that's seeping into global markets. To that end, experts on Wall Street are now recommending <a id="11d97037-8d5c-3d37-a8ba-76b05340d934" href="https://www.businessinsider.com/stock-market-investing-faces-new-competition-from-underperforming-asset-class-2018-12?utm_source=intl&amp;utm_medium=ingest"> cash as a viable asset allocation </a> for the first time in years.

And while some strategists have an idea <a id="1436a677-00da-3a83-a8cb-ebde533c8b87" href="https://www.businessinsider.com/2019-market-forecast-one-thing-that-could-save-investors-from-disaster-how-it-could-happen-2018-12?utm_source=intl&amp;utm_medium=ingest"> what could save the day in 2019 </a> , others are decidedly more pessimistic, with Bank of America Merrill Lynch saying the <a id="86277b5e-ef51-30e3-a87d-1f96dac7b0be" href="https://www.businessinsider.com/stock-market-investing-recommendations-bottom-months-away-bank-of-america-2018-12?utm_source=intl&amp;utm_medium=ingest"> "big low" hasn't yet occurred </a> .

In the end, there's no denying it's a tough environment out there right now — one that seems to have turned its back on formerly beloved semiconductors. Which begs the question of which previously embraced industry will be next.

<a id="17b3416e-f39c-33ac-a38b-a64b94e36fe4" href="https://www.businessinsider.com/2019-market-forecast-one-thing-that-could-save-investors-from-disaster-how-it-could-happen-2018-12?r=below-article-promo?utm_source=intl&amp;utm_medium=ingest"> As the market hurtles toward disaster in 2019, one expert reveals the 'deus ex machina' that could save the day — and breaks down how it could happen </a>

<a id="3fcde621-e36f-387f-a751-e3ca0a43ff76" href="https://www.businessinsider.com/stock-market-investing-faces-new-competition-from-underperforming-asset-class-2018-12?r=below-article-promo?utm_source=intl&amp;utm_medium=ingest"> Wall Street's biggest firms are suddenly embracing an asset class that has languished since the financial crisis — and it's a competitive threat to stocks </a>

<a id="02fcfb51-125c-3547-a334-00b504addcda" href="https://www.businessinsider.com/next-stock-market-crash-will-erase-60-percent-great-depression-parallels-john-hussman-2018-11?r=below-article-promo?utm_source=intl&amp;utm_medium=ingest"> Investors are staring at the bleakest future since the Great Depression — here's why one market bear thinks a crash could wipe 60% from stocks </a>

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<ul><li> <a href="https://www.businessinsider.com/stock-market-investing-faces-new-competition-from-underperforming-asset-class-2018-12?utm_source=intl&amp;utm_medium=ingest">Wall Street's biggest firms are suddenly embracing an asset class that has languished since the financial crisis — and it's a competitive threat to stocks</a> </li><li> <a href="https://www.businessinsider.com/global-stock-market-outlook-tom-naratil-ubs-americas-president-2018-12?utm_source=intl&amp;utm_medium=ingest">UBS Americas president: Recent market turbulence should be a 'wake-up call' for stock investors — and they should start looking outside the US</a> </li><li> <a href="https://www.businessinsider.com/g20-summit-stock-market-trade-war-trading-strategies-from-goldman-sachs-2018-11?utm_source=intl&amp;utm_medium=ingest">Goldman Sachs has formulated these low-risk, high-reward trading strategies to help investors profit from the G20 summit</a> </li></ul>

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This formerly dominant and often overlooked sector is at the epicenter of the stock-market meltdown

When <a id="0d7004ac-3d1a-361b-a1f4-555a2453f45f" href="https://www.businessinsider.com/category/ray-dalio?utm_source=intl&amp;utm_medium=ingest"> Ray Dalio </a> talks about the future of the global financial landscape, everyone should listen.

That's because Dalio — founder and co-chief investment officer of Bridgewater Associates — has proven prescient in the past. This was never truer than when he repeatedly sounded the alarm on the credit collapse that tanked markets a decade ago — a proclamation that many investors ignored at their own peril.

But those same market participants should soon have a chance to redeem themselves, at least if Dalio's latest warnings are valid.

In a discussion withCEO Henry Blodget at Business Insider's <a id="6b158daf-7d07-34b5-a3a5-a4ab13fe18dd" href="https://www.businessinsider.com/category/ignition-2018?utm_source=intl&amp;utm_medium=ingest"> IGNITION conference </a> in New York on Monday, Dalio was asked if a reckoning is near.

The hedge fund legend was initially cagey in his response, electing to lay out what he sees as ongoing debt cycles of differing lengths. He argued that both are getting old in age, but wasn't ready to jump to a worst-case conclusion.

"We're in about the seventh inning of the short-term debt cycle," Dalio told Blodget in front of conference attendees. "They’re tightening monetary policy. Asset prices are fully priced. And we’re in the later stages of a long-term debt cycle, because the capacity of the ability of central banks to ease monetary policy is limited."

Dalio also noted that the global landscape is in the middle of a so-called geopolitical cycle that's seeing the emerging nation of China challenge the unquestioned supremacy of the US. He said these developments are why Chinese relations have been so instrumental in driving markets lately.

When pressed by Blodget on the matter of an <a id="a677f5b3-a20c-3508-afea-a114473ca971" href="https://www.businessinsider.com/ray-dalio-bridgewater-associates-next-recession-scenario-great-depression-parallels-2018-9?utm_source=intl&amp;utm_medium=ingest"> imminent collapse </a> , Dalio was reluctant to compare the current situation to the one preceding the last financial crisis. He instead saw a much more gradual situation playing out — one that should still be viewed with caution.

"The nature of this dynamic is more of a squeeze," said Dalio. "This doesn't look like 2008. In 2007, we would look at the financial statements of entities and see that they weren't able to pay debt, and that we were headed for a big debt crisis. Now it's not the same."

Dalio did note, however, that mounting leverage will come back to bite markets eventually. He warned that massive debt loads could pose major issues down the line.

"It looks more like it'll be a big squeeze, because there's a certain amount of indebtedness," he said. "We also have a great deal of obligations, like pension and healthcare. Both companies and the government are borrowing a lot of money — particularly the government."

Also of great concern to Dalio is the ongoing trade conflict between the US and China. He's fearful that a further escalation of the situation could unleash negative side effects upon the market.

Ultimately, the path forward will be determined by how realistically investors are willing to look at these mounting headwinds. Not every negative factor is created equally, and Dalio said it's important for market participants to do their homework on what could actually have an impact — starting with the trade war.

"A lot depends on how we deal with each other," he said. "And a lot of that depends on us looking at what's true and how the machine works."

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<ul><li> <a href="https://www.businessinsider.com/g20-summit-stock-market-trade-war-trading-strategies-from-goldman-sachs-2018-11?utm_source=intl&amp;utm_medium=ingest">Goldman Sachs has formulated these low-risk, high-reward trading strategies to help investors profit from the G20 summit</a> </li><li> <a href="https://www.businessinsider.com/stock-market-strategy-4-portfolio-tweaks-recommendations-from-credit-suisse-2018-11?utm_source=intl&amp;utm_medium=ingest">The stock market has become wildly unpredictable — here are 4 simple portfolio tweaks Credit Suisse says will help traders make a killing amid the chaos</a> </li><li> <a href="https://www.businessinsider.com/next-financial-crisis-looming-credit-crunch-could-make-it-long-painful-2018-11?utm_source=intl&amp;utm_medium=ingest">MORGAN STANLEY: The next credit crunch could trigger a financial crisis more painful than the last — and companies are only making it worse</a> </li></ul>

SEE ALSO: Investors are staring at the bleakest future since the Great Depression — here's why one market bear thinks a crash could wipe 60% from stocks

The 'big squeeze': Ray Dalio, founder of the world's largest hedge fund, breaks down how the next financial meltdown will look different from the last

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Joe Ciolli

Articles written by the author

This formerly dominant and often overlooked sector is at the epicenter of the stock-market meltdown

The 'big squeeze': Ray Dalio, founder of the world's largest hedge fund, breaks down how the next financial meltdown will look different from the last