On July 17, 2023, the Federal Reserve released its latest Beige Book report, which provides an overview of economic conditions across twelve regional Reserve BanksThis report sheds light on the current state of the U.Seconomy, which, according to the findings, is facing various uncertainties leading to a slowdown in growth expectationsRising inflationary pressures and signs of degraded consumer spending are becoming widely apparent across the board.

As trading concluded that day, the Nasdaq composite experienced a significant drop of 2.77%, marking its largest single-day decline since December 2022. The S&P 500 index fell by 1.39% while the Dow Jones Industrial Average surprisingly rose by 0.59%, setting a new historical highA notable factor contributing to the downward trajectory of tech stocks was a sharp decline in the semiconductor sector, with companies like Nvidia, TSMC, and Meta witnessing losses over 5%. Collectively, these firms saw a staggering loss exceeding $600 billion in market value, equivalent to approximately 43 trillion Chinese yuan.

Tech Stocks Plunge Across the Board

By the end of the trading session, the Nasdaq index closed at 17,996.92 points, having plummeted by 2.77%—the highest daily drop since December 2022. The S&P 500 also saw a sharp decline, closing down 1.39% at 5,588.27 points, while the Dow climbed to 41,198.08 points, continuing its trend of hitting record highs.

A particular catalyst for this decline was the unexpected 12.74% drop in ASML's shares, as the company's projected third-quarter net sales missed market expectations significantly

Following this news, ASML’s market capitalization dwindled by $53.77 billion, translating to more than 39 billion yuan renminbi.

The semiconductor sector as a whole suffered considerably, with the Philadelphia Semiconductor Index plummeting by 6.81%, its most substantial single-day decrease since March 2020, resulting in a near $500 billion loss in market valueOther chip industry players faced similar fates; Applied Materials dropped by 10.48%, AMD fell by 10.21%, Qualcomm declined by 8.61%, TSMC fell by 7.92%, Broadcom dropped 7.91%, Nvidia slipped by 6.64%, Micron Technology fell by 6.27%, and Microchip Technology decreased by 3.47%.

Major tech stocks suffered a series of setbacks as well, posting widespread declinesBy the closing bell, Meta dropped by 5.67%, Amazon declined 2.64%, Apple fell 2.6%, Alphabet, Google's parent company, decreased by 1.59%, Microsoft slipped by 1.33%, and Netflix declined by 1.3%.

Turning to Chinese assets, the Nasdaq China Golden Dragon Index fell by 1.86%, reflecting a general decline in popular Chinese stocks

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Notable drops included Zai Lab, which fell by 14.15%, Bitdeer decreasing by 7.69%, SMIC dropping by 6.65%, Jinko Solar falling by 6.29%, and Futu Holdings declining by 5.72%. Chinese electric vehicle stocks were also notably affected, with NIO dropping 6.12%, Xpeng down by 3.85%, and Li Auto declining by 2.82%.

Currently, many investors, while previously concentrated in tech giants, are hastily reallocating their funds into traditional blue-chip value stocks, thereby lifting the Dow Jones amid the broader downturn.

Slowing Economic Growth Expectations

On the same day, the Federal Reserve released its Beige Book in anticipation of the upcoming July interest rate meeting, which documents the economic conditions as reported by the twelve Reserve BanksThe report encapsulated the state of the economy as of July 8 and provides insights into the latest policy signals affecting the market.

Regarding "overall economic activity," the Beige Book noted that for most regions, economic activity maintained slight to moderate growth through late May and June

Specifically, seven regions reported increases in economic activity, while five experienced stagnation or declines, a noticeable change from the previous report in May which indicated that only two regions showed no changes in economic activity.

The labor market has reportedly shown “slight growth” in the July Beige Book as well, with most regions noting stable or “slightly rising” employment ratesHowever, a trend toward the stabilization or even reduction of employment levels was identified, especially in several regions where manufacturing employment saw declines due to a slowdown in new orders.

In terms of wage trends, most areas experienced “moderate to medium” wage increases, although several districts reported enhanced worker availability leading to decreased competition for labor, which resulted in a deceleration of wage growth

This contrasts with the May Beige Book, which had characterized wage growth as “mostly moderate” with some areas experiencing milder growth.

In the banking and finance sectors, demand for consumer and commercial loans remained weak, though overall loan demand retained a modest pace, and deposits continued to decrease slightly.

Additionally, the Beige Book addressed the expansion of investments in AI technology, noting that contacts in utilities reported a steady increase in electricity demand from commercial and industrial sectors, primarily due to the establishment and enlargement of data center projects focused on leveraging AI technologies.

Analysts interpreted the Beige Book as indicating that while overall economic activity in the U.Scontinues to show positive signs, it is also exhibiting signs of slowdown

Consumer spending remains stable but is not growing, with consumers increasingly sensitive to price changesTherefore, while the economy is still growing, the pace appears sluggish, with more indications of a potential stagnation or decline—a situation that could herald a soft landing trend, albeit with a reminder that every hard landing begins with a soft one.

In tandem with this, multiple Federal Reserve officials continue to send “dovish” signalsFor instance, Waller, a member of the Fed Board of Governors, indicated that the time to consider rate cuts is approachingMeanwhile, Williams, who holds a permanent voting role in the FOMC and is regarded as the “third-ranking official” of the Fed, stated that while the Fed is nearing rate cuts, it is not yet prepared to make such a moveAdditionally, Barkin from the Richmond Fed noted that recent inflation data has been encouraging but emphasized the need for “more” evidence to confirm that inflation is consistently slowing.