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Nasdaq falls nearly 2%, Dow turns negative as tech rally breaks down

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U.S. stocks struggled on Thursday as a rebound in tech stocks faded.

The S&P 500 slid 1%, while the Nasdaq Composite fell about 1.9%. The Dow Jones Industrial Average was down 82 points after rising more than 200 points earlier in the day.

Weakness in Big Tech stocks, including Amazon and Microsoft, weighed on the Nasdaq. Shares of Snap dropped roughly 8%, while Virgin Galactic slid nearly 18% after the space exploration company announced a debt offering. Electric vehicle stock Tesla shed more than 5%.

The slide in tech was poised to end a three-day rally for the Nasdaq. Tech stocks have been volatile to start 2022 as the Federal Reserve has signaled it will fight inflation aggressively this year, including rate hikes and potentially reducing its balance sheet.

“When the Fed is not your friend, you sell rallies,” said Peter Boockvar of Bleakley Advisory Group.

Boockvar noted that several large tech stocks took a step down at around the same time in midday trading.

“Someone said ‘get me out of tech,'” he added.

The markets were supported by some strong earnings reports. Delta Air Lines posted a beat on profit and revenue and reaffirmed full-year guidance, sending its shares up more than 2%. Shares of homebuilder KB Home rallied more than 16% after reporting better-than-expected earnings.

Elsewhere, Dow component Boeing rose 3.1% following a Bloomberg News report that the company’s 737 Max could resume service in China as soon as this month. Shares of regional and mid-sized banks outperformed, with PNC Financial adding more than 1%.

Thursday’s market moves came as another inflation report showed a historically high rise in prices but was not as bad as some economists feared. The December producer price index rose 0.2% month over month. That was below the 0.4% expected by economists surveyed by Dow Jones. However, the measure was up 9.7% year over year, which is the highest on record going back to 2010.

That report follows Wednesday’s December consumer price index, a key inflation measure, which increased 7% year over year, according to the department’s Bureau of Labor Statistics. That was the highest annual reading since 1982, but the report was largely in line with expectations.

Despite those readings, stocks have gained this week while interest rates have dipped, partially unwinding sharp moves in the opposite directions last week.

“We expect the US 10-year yield to move from the current 1.73% to around 2% over the coming months, as investors digest the Fed’s more hawkish stance along with further elevated inflation readings. That said, we don’t expect a sharp rise in yields that will imperil the equity rally. Year-over-year inflation is still likely to peak in the first quarter and recede over the year,” UBS strategists led by senior economist Brian Rose said in a note.

Elsewhere, initial jobless claims for the week ending Jan. 8 came in at 230,000, above the 200,000 projected by economists polled by Dow Jones forecast. However, continuing claims declined.

Investors also kept an eye on Capitol Hill, where Fed Governor Lael Brainard testified before the Senate for her confirmation as vice chairman of the central bank’s policymaking Federal Open Market Committee.

Fourth-quarter earnings season kicks off this week with several major banks reporting on Friday before the bell. Analysts expect fourth-quarter earnings to be up 22.4%, according to Refinitiv, but guidance for 2022 from companies will likely be a key determinant for market action.

-CNBC’s Patti Domm contributed reporting.

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