Nasdaq falls as US export controls on China weigh on chip stocks

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The Nasdaq hit a two-year low on Monday as chipmakers bore the brunt of U.S. efforts to hobble China's semiconductor industry, while caution reigned ahead of the start of the earnings season.

The Philadelphia SE Semiconductor index (.SOX) tumbled 3.5% to also touch a two-year low, after the Biden administration published a set of export controls on Friday, including a measure to cut China off from certain semiconductor chips made anywhere in the world with US equipment.

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Index's Biggest Components Fell Between 1.13% And 3.65%

Some of the index's biggest components including Nvidia Corp (NVDA.O), Qualcomm Inc (QCOM.O), Micron Technology Inc (MU.O) and Advanced Micro Devices (AMD.O) fell between 1.13% and 3.65%.

Anxiety About The Impact of Inflationary Pressures

Major US banks are set to kick off the third-quarter earnings season in earnest on Friday, amid anxiety about the impact of inflationary pressures, rising interest rates and geopolitical uncertainties on their profit.

Earnings for S&P 500 companies have now been estimated to rise 4.1% for the latest three months, down from an increase of 11.1% expected at the beginning of July, as more analysts price in a downturn next year, according to Refinitiv data.

"We're rolling into earnings season now, so there's some concern about continuation of softness as seen in the second quarter," said Jonathan Waite, fund manager and senior equity analyst at Frost Investment Advisors.

Wall Street fell sharply on Friday following a solid jobs report for September that increased the likelihood of the U.S. Federal Reserve sticking to its aggressive interest rate hiking campaign and likely pushing the U.S. economy into a recession.

Chicago Fed President Charles Evans on Monday joined the chorus of other central bankers backing the Fed's attempt to lower inflation without a sharp rise in unemployment even as it continues raising interest rates. read more

"We had a pretty sharp down day on Friday and there's very little change in the picture from the Fed's perspective on inflation or how fast rates hikes might continue to occur," said Randy Frederick, managing director of trading and derivatives for the Schwab Center.

"So the volatility is going to be there until we get at least to the November 2nd (Fed) meeting and probably a week after that when the midterms arrive." Money markets are pricing in an 89% chance of another 75 basis-point hike at the Fed's November meeting.