Stocks fall, suffer their worst day since October
Technology companies led a broad sell-off in stocks Wednesday, knocking more than 600 points off the Dow Jones Industrial Average and handing the market its worst day in nearly three months.
The S&P 500 fell 2.6%, its biggest single-day drop since it lost 3.5% on Oct. 28. It had set a record high just two days earlier. The Dow and tech-heavy Nasdaq composite also fell more than 2%. The sell-off left the S&P 500 and Dow in the red for the year.
Facebook, Netflix and Google’s parent company led the pullback, which started early in the day as investors sized up the latest batch of company earnings reports. The market’s skid accelerated toward the end of the day.
The sharp selling is a shift from the market’s recent record-setting run and comes as investors focus on the outlook for the economy and corporate profits amid a still-raging coronavirus pandemic. Traders were also focused on the eye-popping surge in GameStop, a money-losing video game seller that became the focus of a battle between small investors bidding it higher and big hedge funds betting it would fall.
Expectations on Wall Street built up in recent weeks for a big economic financial boost from the Biden administration, which has proposed a $1.9 trillion stimulus plan. But Democrats’ slim majority in the Senate has raised doubts about how soon more aid might arrive and whether such a package will end up being scaled back by spending-wary lawmakers.
“The reality is setting in that the package won’t be quite as big and maybe a little bit delayed,” said Sal Bruno, chief investment officer at IndexIQ.
The S&P 500 fell 98.85 points to 3,750.77. The Dow lost 633.87 points, or 2%, to 30,303.17. The Nasdaq slid 355.47 points, or 2.6%, to 13,270.60. The Russell 2000 index of smaller companies gave up 41.16 points, or 1.9%, to 2,108.70.
Some analysts said the selling was at least partly a reaction to the outsized moves in GameStop, AMC Entertainment and select other previously beatendown stocks that have notched massive gains in recent days after gaining favor with an online community of individual investors.
GameStop’s stock more than doubled as the company remains caught in a tugof-war between Wall Street institutions and an activist community of online investors. Those investors have bet that hedge funds have put too much money betting against the stock, a concept known as selling “short.”
A pair of professional investment firms that placed big bets that GameStop’s stock would crash have largely abandoned their positions. Other stocks being talked up by online investors also soared Wednesday. AMC surged more than 300%, while headphones maker Koss vaulted 480%.
“Some of what we’ve seen in some of the individual stocks, that’s evidence of some degree of euphoria but also a little bit of instability that then leaves the broader market vulnerable,” said Willie Delwiche, investment strategist at All Star Charts.
Sam Stovall, chief market strategist at CFRA, said investors are getting unnerved by the soaring movements in GameStop and AMC. “Near-term risk is certainly rising, in our opinion, as the GameStop frenzy signals a gamechanger in investor psychology,” Stovall wrote in a research note.
The volatile trading caught the attention of officials in the highest levels of government. The White House said the Biden administration, including the Treasury Department, are monitoring the situation. The Securities and Exchange Commission said it was keeping an eye on the stock and options markets. Federal Reserve Chairman Jerome Powell was asked about the GameStop trading frenzy at a news conference but declined to comment about it.