U.S. stock markets closed mixed on Wednesday after the Fed Chairman reiterate that tight monetary policy to continue. A negative news related to A.I. chip export to China also dampened market participants sentiment. The Dow and the S&P 500 ended in negative territory while the Nasdaq Composite finished in positive zone.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) fell 0.2% to close at 33,852.66. Notably, 14 components of the 30-stock index ended in negative territory, while 16 in positive zone. The tech-heavy Nasdaq Composite finished at 13,591.75, gaining 0.3% due to strong performance of large-cap technology stocks.

The S&P 500 fell marginally by 1.55 points to end at 4,376.86. Six out of 11 broad sectors of the benchmark ended in negative territory while 5 finished in positive zone. The Utilities Select Sector SPDR (XLU) tumbled 1.5% while the Energy Select Sector SPDR (XLE) advanced 1%.

The fear-gauge CBOE Volatility Index (VIX) was up 2.3% to 13.43. A total of 9.89 billion shares were traded on Wednesday, lower than the last 20-session average of 11.57 billion. Advancers outnumbered decliners on the NYSE by a 1.21-to-1 ratio. On Nasdaq, a 1.11-to-1 ratio favored advancing issues.

Powell Reaffirms Tighter Monetary Control

On Jun 28, during a monetary policy session in Sintra, Portugal, Fed Chairman Jerome Powell said that the central bank is likely to pursue multiple hikes in interest rate at an aggressive pace. According to Powell, “We believe there’s more restriction coming. What’s really driving it ... is a very strong labor market.”

The Fed raised the benchmark lending rate from the range of 0-0.25% in March 2022 to the range of 5-5.25% in May 2023. The massive rise in the Fed fund rate was solely aimed to combat a 40-year high inflation. In its latest FOMC meeting in June, the Fed paused rate hike after 10 consecutive increases.

However, in his post-FOMC statement, the Fed Chairman warned that more rate hikes are expected in this year. The inflation rate declined steadily from its peak on June 2022. However, it still remained well above the central bank’s target rate of 2%.

The “dot plot” of the Fed’s June FOMC meeting showed most of the Fed officials are expecting two more rate hike of 25 basis points each. This implies, the Fed fund rate could reach in the range of 5.5-5.75% by the end of 2023. The terminal interest rate likely to settle at 5.625% instead of 5.125% anticipated at the end of May FOMC.

Moreover, last week, central banks of the UK, Switzerland, Norway and Turkey raised their respective benchmark lending rates. Market participants are concerned that higher interest rate will hinder economic activities resulting in global economic recession.

Turmoil in U.S. Chipset Industry

The Wall Street Journal reported that the Biden administration is mulling about renewed restrictions on exports of high-tech A.I.-enabled semiconductors to China. The report said that the Department of Commerce may restrict the shipment of high-end A.I.-enabled chipsets to China in as early as July.

A section of market researchers is concerned that a ban of A.I. chipsets to China not only affect its economic growth but also its military ambitions. This may lead to a geopolitical economic warfare.

Following the news, shares of NVIDIA Corp. (NVDA Quick QuoteNVDA - Free Report) , the leader of the A.I.-enabled semiconductor manufacturers, fell 1.8%. The company generates more than 25% of its revenues from China. As a result, export ban of its most advanced semiconductors may turn a major headwind. NVIDIA currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.