U.S. stocks extended losses Thursday as investors digested earnings and recession talk from Wall Street's big banks while reeling from shock inflation data that raised the possibility of a 100 basis point rate hike later this month.

The S&P 500 and Dow Jones Industrial Average clawed back from session lows of nearly 2% but each closed down 0.3% and 0.5%, respectively. The tech-heavy Nasdaq teetered into positive territory to cap the session just above breakeven.

JPMorgan Chase (JPM) was in the spotlight Thursday after reporting a wider-than-expected drop in second-quarter profit of 28%, attributing the decline to a $1.1 billion in provision for credit losses amid concerns over a possible economic downturn. Shares closed down 3.5%.

“In our global economy, we are dealing with two conflicting factors, operating on different timetables," CEO Jamie Dimon said. "The U.S. economy continues to grow and both the job market and consumer spending, and their ability to spend, remain healthy."

"But geopolitical tension, high inflation, waning consumer confidence, the uncertainty about how high rates have to go and the never-before-seen quantitative tightening and their effects on global liquidity, combined with the war in Ukraine and its harmful effect on global energy and food prices are very likely to have negative consequences on the global economy sometime down the road," Dimon added.

Morgan Stanley (MS) revealed results that missed analyst expectations, dragged down primarily by a slump in investment banking revenue due to volatile market conditions. Shares capped the session 0.3% lower after paring a 2% loss.

These results also weighed on the broader financial sector, sending shares of bank peers Citi (C) and Wells Fargo (WFC) down over 3% and 0.9%, respectively ahead of their own earnings on Friday.

The moves across equity markets come after all three major indexes tumbled Wednesday following fresh CPI data that showed prices across the U.S. economy surged at the fastest pace since 1981.

“Markets had a knee-jerk reaction after the eye-popping inflation numbers and the headline number of 9.1% only makes the job that much harder for the Fed,” Allianz Investment Management Senior Investment Strategist Charlie Ripley said. “As a result, the Fed is likely going to send a hawkish message at the July meeting, and it would be a mistake to think that a rate hike less than 75 basis points is in the cards.”

The blowout headline figure even spurred a wave of speculation among strategists that an increase of 100 basis points may now be on the table — a move that would mark the most combative monetary intervention since the early 1990s.

Federal Reserve Board of Governors member Christopher Waller in comments Thursday maintained his support for a 0.75% rate hike at policymakers' next meeting later this month but said he would be open to backing an increase of one full percentage point if upcoming economic releases point to strong consumer spending.

The remarks echo sentiment shared by Atlanta Fed President Raphael Bostic following Wednesday's CPI data.

“Everything is in play,” Bostic told reporters in St. Petersburg, Florida. When asked if that included lifting interest rates by a full percentage point, he said, “it would mean everything.

On the economic data front, initial jobless claims edged higher last week in a potential sign the labor market may be cooling as the Federal Reserve tightens financial conditions.

First-time filings for unemployment insurance in the U.S. increased to 244,000 in the week ended July 9, up by 9,000 from the prior period, Labor Department data showed Thursday morning. Economists surveyed by Bloomberg had expected the latest figure to come in at 235,000.

The producer price index for final demand — a gauge of wholesale and business prices — surged 11.3% year-over-year in June and 1.1% from the prior month, the Labor Department also reported Thursday, underscoring inflationary pressures at the wholesale level.

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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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