US stocks fell on Monday, with the Nasdaq posting its lowest close since July 2020, as investors worried about the impact of higher interest rates and pulled out of chipmakers after the United States announced restrictions aimed at hobbling China's semiconductor industry.

Federal Reserve Vice Chair Lael Brainard said tighter US monetary policy has begun to be felt in an economy that may be slowing faster than expected, but the full brunt of Fed interest rate increases still won't be apparent for months.

Despite growing concerns by a number of economists and analysts that the Fed's interest rate hikes could increase unemployment, Chicago Fed President Charles Evans continued to back the central bank's attempt to lower inflation, saying that while it sounds "optimistic" he believed it could do so "while also avoiding recession."

"People are worried about the economy. People are worried about a possible recession," said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma.

The Philadelphia SE Semiconductor index dropped 3.5 percent after the Biden administration published a set of export controls on Friday, including a measure to cut China off from certain semiconductor chips made anywhere in the world with U.S. equipment.

Shares of Nvidia fell 3.4 percent, while Qualcomm, Micron Technology and Advanced Micro Devices also ended lower.

Investors were also cautious ahead of the US third-quarter earnings season, which is set to kick off on Friday with results from some of the major banks.

The Dow Jones Industrial Average fell 0.32 percent, to 29,203, the S&P 500 lost 0.75 percent, to 3,612 and the Nasdaq Composite dropped 1.04 percent, to 10,542.

Microsoft's stock was down 2.1 percent and was among the biggest drags on the three major indexes. S&P 500 technology led sector declines along with energy.

Investors were also awaiting US inflation data this week. (Reuters)