U.S. stocks fell sharply on Wednesday as investors pored through mixed earnings from major companies and awaited the latest policy decision from the Federal Reserve.
The Dow Jones Industrial Average lost 350 points, or 1.2%, while the S&P 500 dropped 1.3%. The tech-heavy Nasdaq Composite dropped 1.4%. The S&P 500 and the Nasdaq Composite both hit intraday record highs in the previous session.
Boeing fell more than 3% after its earnings report showed 2020 net loss hit a record of $11.9 billion amid the 737 Max grounding and the coronavirus pandemic.
Microsoft investors cheered stellar results from the tech giant. Sales grew by 17% on a year-over-year basis in its fiscal second quarter, while its cloud business accelerated. Microsoft shares rose 1.0%.
Starbucks topped earnings estimates for the last quarter, but its U.S. same-store sales fell 5% amid rising cases of Covid-19. Shares of the coffee chain fell more than 3%.
Apple, Facebook and Tesla are due to report earnings after the closing bell. They represent three of the six largest companies in the U.S. by market cap, meaning fluctuations in their stock prices have an outsized impact on the performance of the broader S&P 500.
Intensifying speculative behavior among retail investors is causing many on Wall Street to raise a red flag. Heavily shorted names, including GameStop and AMC Entertainment, continued to be pushed higher by amateur day traders in online chat rooms.
GameStop shares exploded again, more than doubling on Wednesday. CNBC learned Melvin Capital, the hedge fund targeted by the retail investing crowd on Reddit had sold out of its short position. AMC was up more than 300%.
“These moves end when they end, and generally with pain to the winners,” said Gregory Faranello, head of U.S. rates trading at AmeriVet Securities. “Short gamma positions can be very painful. Couple this with large outright bets that go against the hedges that need to happen, and you have a dislocated, parabolic market where buying begets more buying.”
“The Big Short” investor Michael Burry said in a now-deleted tweet Tuesday that trading in GameStop is “unnatural, insane, and dangerous” and there should be “legal and regulatory repercussions.”
The Cboe Volatility Index, known as the VIX or Wall Street’s fear gauge, jump above 27 on Wednesday, hitting its highest level in three weeks.
Investors will also keep a close eye on comments from Fed Chairman Jerome Powell, who is expected to speak with reporters during a press conference Wednesday afternoon following the Fed’s latest interest rate decision.
The central bank chief will likely explain how the Fed views the economic outlook and offer remarks about what, if any, monetary actions are needed to help further stabilize the U.S. economy.
Many investors hope Powell and his colleagues will steer clear of the word “tapering,” the process by which the central bank would curb its monthly bond purchases that have helped keep the financial system adrift with cash and encouraged investors to take on risk despite rich equity valuations.
