Tom Lee flags 88% win rate for semiconductors after SMH sell-off

Fundstrat's Tom Lee says the semiconductor sell-off that erased 7% from SMH has historically preceded a one-month rally 88% of the time.

The VanEck Semiconductor ETF fell 7% on June 23, its steepest single-day drop this year, as AI spending concerns triggered broad tech selling.

"The sell-off creates a compelling entry point for semiconductor exposure," Tom Lee, head of research at Fundstrat Global Advisors, said on CNBC on June 24. "Historically, when SMH and SOXX have fallen this sharply, the next month has delivered positive returns 88% of the time."

The iShares Semiconductor ETF lost 7.9% alongside SMH on June 23, while the Direxion Daily Semiconductor Bull 3X Shares plunged 23%, reflecting the amplified damage from daily-reset leverage. The sell-off followed reports that sparked concerns about AI infrastructure spending levels, though no single company-specific catalyst was identified.

Lee's call puts a statistical framework behind what he argues is a buying opportunity for the sector. If the historical pattern holds, semiconductor ETFs would be positioned for a recovery through late July, a timeline that aligns with the start of second-quarter earnings season for major chip companies including Nvidia, AMD and Broadcom.

The 88% pattern in context

Lee's analysis draws on historical instances where semiconductor indices experienced comparable single-day declines. The 88% win rate refers to the frequency with which the sector posted positive returns in the 21 trading days following such drops, according to Fundstrat's research. The pattern has held across multiple market cycles, including the 2022 downturn when semiconductors fell 35% before rebounding, and the post-Covid recovery in 2020 when the sector more than doubled over the following 18 months.

The 88% figure is based on a statistically meaningful sample of comparable drawdowns, Lee said, though he did not disclose the exact number of historical observations used in the analysis. The high win rate suggests the pattern is not random noise, he argued, but reflects a tendency for sharp semiconductor sell-offs to attract buyers who view the pullback as an overreaction.

Cross-asset signals to watch

The broader market showed mixed signals on June 23 as the semiconductor rout unfolded. The S&P 500 edged down 0.2% to 7,389, while the Nasdaq 100 fell 0.8% to 29,287. The Dow Jones Industrial Average rose 0.3% to 51,983, according to market data. The Russell 2000 added 0.4% to 2,995, suggesting the sell-off was concentrated in large-cap tech names rather than the broader market.

The 10-year Treasury yield and the U.S. dollar index will be key cross-asset signals to watch over the coming weeks. A falling yield environment has historically supported growth-oriented semiconductor stocks, while a strengthening dollar could weigh on the sector's export-heavy revenue base. The Cboe Volatility Index, which typically rises during periods of market stress, will also provide clues on whether the sell-off has run its course.

For investors, the question is whether this instance differs from historical precedents. A sustained recovery would reinforce the bull case for tech; a failure to rebound would raise questions about whether AI-driven demand can justify the sector's elevated valuations. Lee's call, backed by the 88% historical win rate, gives semiconductor bulls a data point to lean on as the market navigates the next month of trading.

This article is for informational purposes only and does not constitute investment advice.