NEW YORK, Oct. 7 -- U.S. stocks dropped on Monday, as investors braced for key inflation data and the kickoff of earnings season.

The Dow Jones Industrial Average fell 398.51 points, or 0.94 percent, to 41,954.24, after notching a fresh record high as stocks soared to close last week. The S&P 500 sank 55.13 points, or 0.96 percent, to 5,695.94. The Nasdaq Composite Index shed 213.95 points, or 1.18 percent, to 17,923.9.

Ten of the 11 primary S&P 500 sectors ended in red, with utilities and communication services leading the laggards by losing 2.32 percent and 1.97 percent, respectively. Meanwhile, energy bucked the trend by rising 0.35 percent.

Optimism for a larger rate cut by the Federal Reserve faded following a stronger-than-expected September jobs report, which eased concerns about weaknesses in the labor market. Traders have shifted their expectations, now predicting an 88 percent chance of a smaller 25-basis-point rate cut in November, down from previous bets on a reduction of half a percentage point, according to the CME FedWatch tool.

As the third-quarter earnings season kicks off this week, major banks are set to report their results, though Wall Street analysts are less optimistic about overall S&P 500 earnings than they were earlier in the summer. According to FactSet Senior Earnings Analyst John Butters, the third-quarter bottom-up earnings per share estimate for the S&P 500 fell by 3.9 percent between June 30 and Sept. 30, dropping from 63.20 U.S. dollars to 60.72 U.S. dollars.

Despite the more cautious outlook from some analysts, Goldman Sachs has taken a more optimistic stance, raising its S&P 500 price target. The bank now expects the index to rise by 10 percent over the next year, reaching 6,300, driven by its positive view on corporate earnings, even as others warn of risks in the stock market.

On the corporate front, stocks hit session lows after a judge ruled that Alphabet must allow more competition within its Google Play app store. Shares of Amazon dropped over 3 percent, while Microsoft also declined by more than 1.5 percent. Nvidia was the only member of the "Magnificent 7" to post gains this afternoon.

  - Xinhua