Chip stocks jump as investors get bullish

It's universally acknowledged that you can't write about individual stocks without referring to the macroeconomic environment in which they exist. If a company's shares increase in value by five percent, but so do all others, it has stood still in a relative sense.

On first glance at the table below, it's easy to come to the conclusion that there must have been some seriously positive news in the PC chip world last week, as AMD, Intel and NVIDIA all saw their shares experience double figure gains. But on the contrary, last week market researcher Gartner cited weak demand for PCs as the main reason for downgrading its forecast for semiconductor revenues.

A look at the indices shows the tech-heavy NASDAQ was up over six percent last week, with the Dow not far behind, and all our stocks had positive weeks, so that puts the chip gains in some perspective.

The reason for all this investor joie de vivre seems to be Europe, where the potential catastrophe of sovereign debt default has rendered investor fingernail-less insomniacs. It looks like a combination of Germany and France sounding a bit more on top of things than usual, coupled with China publicly contemplating buying Italian debt, has restored some spring to investors' steps, perhaps especially with respect to the PC market.

But there's no reason to believe we won't see a Newtonian recoil in the next week or two, as investors realise the underlying reasons for their general sense of gloom remain unchanged. Many European countries have borrowed so much that they can't even afford the interest payments, let alone pay the debt off.

This spiral of debt means they have to borrow more in order to pay the interest, thus getting into more debt and this increasing their interest payments. Every time a country such as Greece gets ‘bailed out' all that has actually happened it that it has been prevented from defaulting, this time. But the debt burden, and thus the problem, remains.

It's thought by many that the only way to solve this problem in the long term is for the debt belonging to these imperilled countries to be taken on by the whole of Europe - the so-called ‘Euro Bond'. But this would mean much greater economic, and thus political, integration than originally intended in the Euro project. Prepare yourself for the United States of Europe.