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U.S. stocks extended a downtrend on Monday to start the week lower as Wall Street steered into third-quarter earnings season and braced for a batch of inflation reports.
The technology-heavy Nasdaq Composite (^IXIC) led declines, dropping 1% to a two-year low as a set of fresh restrictions by the Biden administration on China's access to American technology sent chip stocks tanking and weighed on the broader tech sector. The S&P 500 (^GSPC) slid 0.8% and the Dow Jones Industrial Average (^DJI) shed roughly 90 points, or 0.3%.
Declines accelerated in the afternoon as investors weighed comments from JPMorgan (JPM) Chief Executive Officer Jamie Dimon suggesting the U.S. economy is likely to enter a recession in six to nine months. Dimon told CNBC at a conference in London that inflation, Russia's war in Ukraine, and the impact of Federal Reserve rate hikes create a “very, very serious” mix that could result in an economic downturn, adding that Europe is in a recession already.
Technology stocks took the brunt of Monday's selling as chip stocks plunged. Measures imposed by the U.S. to curb China's access to semiconductors aim to slow the country's technological and military advances but deal a further blow to an industry already struggling with weaker revenues as demand slows for computers, smartphones, and other electronic devices. Shares of major chipmakers including Nvidia (NVDA) and AMD (AMD) closed down 3.4% and 1.1%, respectively.
The CBOE Volatility Index (^VIX), which measures short-term expectations for market turbulence, spiked above 32. And Treasury yields extended their recent climb higher. Oil retreated after surging 17% last week, the largest jump since Russia invaded Ukraine.
The moves come after an erratic week that began with a fierce rally and concluded with a sharp sell-off that erased much of the resulting gains. The latest downslide was spurred by a strong September jobs report that confirmed to investors Federal Reserve officials are unlikely to shift away from restrictive monetary policy any time soon.
The benchmark S&P 500 index was down 23.6% year to date as of Friday’s close, but nine single trading days comprise that entire decline of 32 total points, according to Nicholas Colas of DataTrek Research.
The greater share of down days occurred around Consumer Price Index (CPI) or Federal Reserve-related events, one was prompted by Russia-Ukraine tensions, and two came on the heels of bad corporate earnings releases, he added. In the week ahead, all of those factors are expected to test the U.S. stock market.