Nasdaq Composite posts worst close in 2 years on Monday, falling by 1.04%

The tech-leaning Nasdaq Composite (.IXIC) posted its worst close since July 2020 on Monday as other U.S. stock indices also plummeted. The index closed at 10,542.10, dropping by 1.04 percent or 110.30 points. In total, Nasdaq posted 461 new lows against 58 new highs.

The S&P 500 (.SPX) closed at 3,612.39, falling 0.75 percent or 27.27 points. The Dow Jones Industrial Average (.DJI) closed at 29,202.88, falling 0.32 percent or 93.91 points. These three major indices were heavily affected by the 2.1 percent drop in Microsoft’s shares.

The Philadelphia SE Semiconductor index (.SOX) plunged 3.5 percent, reaching its two-year low. Nvidia Corp (NVDA.O) fell 3.4 percent in the same period. Advanced Micro Devices (AMD.O), Qualcomm Inc (QCOM.O) and Micron Technology Inc (MU.O) also closed lower on Monday.

This development followed an announcement by the U.S. government on Friday on restricting the sales of several semiconductor chips made by any producer that used U.S. equipment. The government hopes to set back China’s tech development by a few years by preventing China from purchasing advanced chips for its tech industry.

The administration admitted, however, that not all nations had agreed to comply with this new policy.

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“We recognize that the unilateral controls we’re putting into place will lose effectiveness over time if other countries don’t join us,” an official said. “And we risk harming US technology leadership if foreign competitors are not subject to similar controls.”

The tight fiscal policies implemented by the Federal Reserve also contributed to the drop in U.S. stocks. Fed vice chairman Lael Brainard said that the economic slowdown might continue at a faster rate, adding it would take months for the effect of the Fed's interest rate hikes to be felt by the people.

A number of economists have voiced concerns that continuous interest rate hikes can cause adverse effects, including an increase in the unemployment rate. It dropped by 0.2 percent in September, falling below the Fed’s expectation to lower the inflation rate. The Fed said it expected unemployment to hit 4.4 percent by next year.

Despite the risks, the Fed still insisted on the importance of fighting inflation by raising interest rates. Chicago Fed head Charles Evans said that a higher unemployment rate was “unfortunate,” but stabilizing prices was more crucial.

“Ultimately, inflation is the most important thing to get under control. That’s job one,” Evans said. “Price stability sets the stage for stronger growth in the future.”

More data to come this week

Several sets of data are expected to be released this week. The September consumer price index (CPI) will be made public on Thursday. Analysts have predicted that the price index for food and energy will increase to 6.5 percent. The September FOMC meeting minutes will also be released this week to provide insights on future fiscal policies.

Several major banks, including JPMorgan and Wells Fargo, will start releasing analyses of the U.S. third-quarter earnings on Friday. Most industries are expected to see about a three percent decline in earnings per share. Analysts have also predicted that earnings per share margins will decrease by 132 basis points. S&P 500 companies, for example, are projected to show 4.1 percent growth in Q3. This figure is lower than the 11.1 percent growth projected earlier in July.