Short squeeze pushes Wall Street into red

US stocks suffered their biggest one-day percentage drop in three months on Wednesday, adding to losses after the latest Fed statement as major indexes were also pressured by a slump in Boeing and a selling of long positions by hedge funds.

Shares of video game retailer GameStop and cinema operator AMC each more than doubled on Wednesday, continuing a torrid run higher over the past week, as amateur investors again piled into the stocks, forcing short-sellers such as Citron and Melvin to abandon their losing bets.

“It’s a dangerous game to play from both sides of the spectrum, whether you’re long or short,” said Matthew Keator, managing partner in the Keator Group, a wealth management firm in Lenox, Massachusetts. “You get close enough to the fire you’re going to get burned.”

After briefly paring losses, declines accelerated in the wake of the policy statement from the Federal Reserve. The central bank kept overnight interest rate near zero and made no change to its monthly bond purchases, as was widely expected, and pledged to keep that support intact until a full economic rebound is in place.

“Given the continued concerns around Covid and disappointingly slow rollout of the vaccine, the US economy is likely to lose momentum in the first quarter of the year,” said Seema Shah, chief strategist at Principal Global Investors in London.

“Yet with fiscal stimulus having taken over from monetary policy as the only game in town, it was always doubtful the Fed would announce any new actions this month.”

The Dow Jones Industrial Average fell 2.05 percent, to 30,303, the S&P 500 lost 2.57 percent, to 3,751 and the Nasdaq dropped 2.61 percent, to 13,271.

Boeing fell 3.97 percent and was among the top drags on the Dow after the planemaker took a hefty US$6.5 billion charge on its all-new 777X jetliner due to the Covid-19 pandemic and the aftermath of a two-year safety crisis over its 737 Max. (Reuters)