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Jan. 27, 2021, 4:44 p.m. EST

U.S. stocks book worst daily losses since October as Powell stresses long road to recovery and short squeeze drama plays out

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By Joy Wiltermuth and Andrea Riquier

Stocks closed sharply lower Wednesday, leaving the Dow and S&P 500 index negative for 2021, on mixed earnings reports and after Federal Reserve Chairman Jerome Powell underscored the long road to economic recovery ahead, following the central bank’s first policy meeting of 2021.

Investors also were transfixed by trading in videogame retailer GameStop Corp. GME , which has surged more than 1,700% this month, as well as in a few other key heavily shorted stocks favored by an army of individual investors organized via Reddit’s wallstreetbets forum.

How did major benchmarks perform?

  • The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -1.11% skid 633.87 points, or 2.1%, to close at 30,303.17, posting its longest losing streak since Friday, February 28, 2020 when the market fell for seven straight trading days

  • The S&P 500 /zigman2/quotes/210599714/realtime SPX -1.34% shed 98.85 points, or 2.6%, ending at 3,750.77.

  • The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -2.11% fell 355.47 points, 2.6%, to finish at 13,270.60.

  • Wednesday marked the worst day of losses for all three major indexes since Oct. 28, 2020 on a point and percentage basis, according to Dow Jones Market Data.

  • For the year the Dow is now down 0.99%, the S&P 500 down 0.14% and the Nasdaq is up 2.97%

Stocks ended Tuesday’s choppy session with small losses, with the Dow, S&P 500 and Nasdaq each declining 0.1%. The Dow fell for a fourth straight session, while the Nasdaq broke a five-day win streak. Both the Nasdaq and S&P 500 had closed at records on Monday.

What drove the market?

There were no surprises from the Fed on Wednesday, which opted to hold interest rates steady near zero and left unchanged its massive bond-buying program, following its first policy meeting of 2021. But it still was another day of volatile trading in U.S. equities.

Fed Chair Jerome Powell stressed that the economy remained far from a recovery, but also underscored that recent asset gains have been driven largely by optimism about the rollout of vaccines to combat the coronavirus pandemic, as well as by fiscal policy, and not necessarily by accommodative monetary policy.

Even after being asked several times during an afternoon press conference, Powell refused to comment on GameStock’s wild trading action, which surged another 121% Wednesday, saying the central bank broadly keeps an eye on valuations and financial stability, along with unemployment and inflation.

“They have kept rates near zero for the unemployment part of their mandate,” said Zhiwei Ren, a portfolio manager at Penn Mutual Asset Management, and its lead quantitative research and derivative hedging, on the Fed’s efforts to bolster the economy through the pandemic.

The Fed update comes as investors fret about a sudden price surge in shares of GameStop and a handful of other companies that appear to be caught in the crosshairs of a short squeeze battle between individual investors and hedge funds who have had to sell better known names to cover loss on their short positions.

See : GameStop and AMC stocks soar on another day of wild trading in heavily shorted companies

Shares of AMC Entertainment Holdings Inc. /zigman2/quotes/200235402/composite AMC -6.41% , BlackBerry Ltd.  /zigman2/quotes/202784246/composite BB -3.05% , headphone maker Koss Corp.  /zigman2/quotes/207340503/composite KOSS -9.57% and retailer Express Inc.  /zigman2/quotes/210459169/composite EXPR -1.57% have all experienced sharp moves without any apparent news to act as a driver, while facing a large amount of bets against them.

In response, a few major brokerage houses on Wednesday moved to restrict trading in shares of some companies subject to frenetic price surges and buying by individual investors on social-media platforms.

Read : GameStop, AMC trading is now being restricted at TD Ameritrade, Schwab

But Ren also said he’s keeping his eye on potential asset bubbles forming because of extra government spending and loose monetary policy to combat the crisis, calling the trend of individual investors banding together online “like a revolution.”

“I’ve read the posts, they are well-informed. You can tell they have done their homework,” he said.

Mark Stoeckle, chief executive officer at Adams Funds, told MarketWatch that he thought much of the day’s volatility was being driven by “the short selling community being squeezed.”

/zigman2/quotes/210598065/realtime
US : Dow Jones Global
30,924.14
-345.95 -1.11%
Volume: 551.23M
March 4, 2021 5:08p
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/zigman2/quotes/210599714/realtime
US : S&P US
3,768.47
-51.25 -1.34%
Volume: 3.44B
March 4, 2021 5:08p
loading...
/zigman2/quotes/210598365/realtime
US : U.S.: Nasdaq
12,723.47
-274.28 -2.11%
Volume: 6.68M
March 4, 2021 5:16p
loading...
/zigman2/quotes/200235402/composite
US : U.S.: NYSE
$ 8.03
-0.55 -6.41%
Volume: 77.82M
March 4, 2021 4:00p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$3.24 billion
Rev. per Employee
$140,744
loading...
/zigman2/quotes/202784246/composite
US : U.S.: NYSE
$ 9.84
-0.31 -3.05%
Volume: 26.12M
March 4, 2021 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$5.71 billion
Rev. per Employee
$283,533
loading...
/zigman2/quotes/207340503/composite
US : U.S.: Nasdaq
$ 15.30
-1.62 -9.57%
Volume: 2.75M
March 4, 2021 4:00p
P/E Ratio
163.46
Dividend Yield
N/A
Market Cap
$128.87 million
Rev. per Employee
$494,914
loading...
/zigman2/quotes/210459169/composite
US : U.S.: NYSE
$ 2.51
-0.04 -1.57%
Volume: 6.27M
March 4, 2021 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$165.68 million
Rev. per Employee
$144,228
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