US stock markets experienced a significant downturn due to semiconductor losses following Nvidia’s announcement of substantial charges related to new export restrictions to China. The Nasdaq Composite dropped over 2%, with the S&P 500 and Dow also in negative territory as traders reassessed the prospects for Big Tech in light of cautious remarks from Fed Chair Jerome Powell.
The U.S. Commerce Department’s imposition of new licensing rules on advanced AI chip exports to China triggered heavy pressure on semiconductor stocks. Nvidia revealed that the restrictions would lead to a $5.5 billion quarterly charge, causing its shares to plummet by over 7%. Similarly, AMD forecasted an $800 million impact from the same policy, contributing to a broader decline in the chip sector.
Not limited to chips, the tech sector as a whole faced losses, with companies like Meta, Microsoft, and Tesla witnessing drops of more than 2%. Tesla, in particular, faced additional challenges amid reports suggesting potential delays in electric truck production due to tariffs on Chinese parts. The information technology sector recorded a sharp decline of over 4%, reflecting a broader trend of underperformance in the tech industry.
Amidst the market turmoil, the energy sector emerged as a standout performer, with the S&P 500 energy group rising nearly 2% supported by stable crude prices. Stocks like Apache and Devon Energy saw gains of 4% or more, while real estate experienced a slight uptick. Defensive sectors like utilities, however, saw marginal declines.
Powell’s comments during the mid-session further fueled market uncertainty as he hinted at the complexities trade-related uncertainties could introduce into the Fed’s decision-making process. Although not ruling out future rate cuts, Powell emphasized the need for clearer signals before adjusting policy, with traders currently assigning only an 18% probability to a rate cut at the upcoming meeting.
Given the regulatory pressure on chips and the broader underperformance of the tech sector, short-term market sentiment remains fragile. Traders are advised to monitor trade developments, upcoming earnings releases, and macroeconomic data for indications of market direction amidst the current turbulent conditions.
As the markets grapple with the impact of chip curbs and Powell’s cautious stance on rate cuts, investors are navigating a challenging landscape where tech stocks face significant headwinds. The evolving dynamics in the semiconductor industry and the broader tech sector are reshaping market sentiment and highlighting the importance of monitoring key developments to make informed investment decisions.