Stocks drop as Treasury yields widen their inversion

Traders work on the floor of the New York Stock Exchange (NYSE) on June 27, 2022 in New York.

Spencer Platt | Getty Images

This report is taken from today’s CNBC Daily Open Newsletter, our new International Markets Newsletter. The CNBC Daily Open brings investors everything they need to know, wherever they are. Like what you see? You can subscribe Here.

The January rally in US stocks came to a halt as Treasury yields widened their inversion. Recent data has failed to paint a coherent picture of the economy.

What do you need to know today

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The January rally appears to be fading as investors ponder the strange state of the US economy.

US weekly jobless claims reached 196,000 in the week ending Feb. 4. Although this is 13,000 more than the previous week, it is still one of the lowest numbers ever. However, the number is larger than analysts expected and runs counter to January’s employment data, which reported a record low unemployment rate.

Despite a strong labor market, the Treasury yield curve remains inverted, meaning that the yield on 2-year Treasury bonds exceeds the yield on 10-year Treasury bonds. On Thursday, the inversion widened. This usually indicates that investors are worried about market conditions in the near term, and sometimes signals a recession.

These economic signals, combined with the Federal Reserve’s continued hawkish tone, seem to have given investors pause. On Thursday, US stock indices continued their two-day falling streak. The Dow Jones Industrial Average lost 0.73% and the S&P 500 lost 0.9%. The tech Nasdaq Composite, weighed down by a 4% drop in parent Google Alphabet and a 3% drop in Meta, fell 1.02%.

Until economic data paints a more coherent picture of the US economy, markets are likely to remain volatile.

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