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Stocks give up on rebound rally

CNN logo CNN 1/20/2022 By Anneken Tappe, CNN Business
Traders work on the floor of the New York Stock Exchange (NYSE) on January 20 in New York City. © Spencer Platt/Getty Images Traders work on the floor of the New York Stock Exchange (NYSE) on January 20 in New York City.

The rebound just wasn't meant to be. After rallying for much of the day, Wall Street's major indexes dropped into negative territory in the afternoon.

The S&P 500 closed 1.1% lower, while the Dow dropped 0.9%, or 313 points.

The Nasdaq Composite ended down 1.3%, after swinging more than 3% between its highest and lowest points of the session. The index failed to reverse its losses from the start of the week that led to its closing in correction territory on Wednesday, defined as a 10% drop from its high.

The drop is an unfortunate signal to investors just as big tech earnings season gets underway.

Netflix is reporting results after the bell Thursday, ahead of more big tech companies that will do so next week. The company's shares closed down 1.5%.

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"The key question on investors' minds, though, will be whether the tech rout is already behind us after a 10% drop," Oanda senior market analyst Craig Erlam said in a note to clients. "That will depend on more than just a few stellar earnings reports."

It's been a bumpy few days for the market, starting with Tuesday's steep drop on the back of rising Treasury bond yields and disappointing bank earnings.

The 10-year Treasury yield continues to trade above 1.8% for the first time since before the pandemic, albeit inching down to 1.82% Thursday afternoon.

Among the key factors driving the market, aside from earnings, are interest rate expectations and how much the normalization of the Federal Reserve's monetary policy is priced in at this point, Erlam added.

The Fed is meeting next week but no immediate changes are expected. The market appears to be pretty much convinced there will be an interest rate hike in March, according to the CME FedWatch tool.

While the Fed is busy trying to rein in the rampant pandemic-era inflation by normalizing its policies, economic data from Thursday morning painted a muddled picture of the economy.

Weekly claims for unemployment benefits rose more than expected last week, climbing to 286,000, adjusted for seasonal swings. This likely reflects layoffs related to the Omicron variant, as well as seasonal employment changes in the period following the holidays, said economists at Goldman Sachs. In fact, without seasonal adjustments, claims fell last week.

On the flip side, the Philly Fed Index rose more than expected in January.


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