Nasdaq Ekes Out a Win Despite Chip Stock Weakness

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A lack of market-moving headlines and low trading volume ahead of next week's stock market holiday made for a choppy session Wednesday.

Semiconductor stocks retreated on reports the Biden administration is considering more restrictions on chip sales to China, but strength in mega-cap tech stocks helped mitigate any damage.

The three major equity benchmarks opened in negative territory Wednesday after a report in The Wall Street Journal suggested the U.S. is contemplating further restrictions on sales of artificial intelligence chips to China. This latest effort is reportedly part of a broader set of rules limiting sales of certain semiconductors to China the Biden administration issued last fall.

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Chipmaker Nvidia (NVDA, -1.8%), which gets 20% of its revenue from China, was one of the day's biggest decliners, though it finished well off its intraday low.

Still, the tech-heavy Nasdaq Composite eked out a 0.3% gain to 13,591, as heavily weighted components Apple (AAPL, +0.6%) and Microsoft (MSFT, +0.4%) gained ground. Elsewhere, the S&P 500 (-0.04% at 4,376) and the Dow Jones Industrial Average (-0.2% at 33,852) suffered modest losses.

Powell talks rate hikes

Also in focus today was an appearance by Federal Reserve Chair Jerome Powell at the European Central Bank's annual forum in Sintra, Portugal. Powell said that a "strong majority" of U.S. central bankers were ready to issue two more quarter-point rate hikes this year, and that raising rates at back-to-back meetings is not "off the table."

The next Fed meeting kicks off in late July and futures traders are pricing in an 81.8% chance the central bank will lift rates by 25 basis points (0.25%), according to CME Group.

The best inflation-proof investments

Powell's warning on rate hikes came as the Fed chair said data continues to show strong growth, a tight labor market and stubbornly high inflation. "That tells us that although policy is restrictive, it may not be restrictive enough and it has not been restrictive for long enough," Powell said.

The next reading on inflation will come out Friday, with the May personal consumption and expenditures (PCE) index – a measure of consumer spending – slated for release at 8:30 am Eastern time. BofA Global Research expects the PCE index to rise 0.1% month-over-month and 3.8% year-over-year in May. That would be slower than the 0.4% and 4.4% increases seen in April, but still well above the Fed's 2% inflation target.

Investors have several options to counterbalance the effects of inflation on their portfolios. While gold may not be one of them, energy stocks and consumer staples stocks are two of the best inflation-proof investments. There's also the best dividend stocks for dependable dividend growth or, for those seeking a more diversified approach, the best dividend growth ETFs, all of which are solid defensive investments.

With over a decade of experience writing about the stock market, Karee Venema is the senior investing editor at Kiplinger.com. She joined the publication in April 2021 after 10 years of working as an investing writer and columnist at a local investment research firm. In her previous role, Karee focused primarily on options trading, as well as technical, fundamental and sentiment analysis.