US Stocks Post Steep Loss in Wake of Heightened Speculative Trading, Fed Statement

The major U.S. stock indexes posted their biggest one-day percentage drop in three months on Wednesday. Some blamed concerns about heightened speculative trading for the plunge. Others said a slump in Boeing lit the match along with disappointment from the Fed. Still others said it was the Herd Theory amid major long liquidation by hedge funds.

In the cash market, the benchmark S&P 500 Index settled at 3750.77, down 98.85 or -2.93%. The blue chip Dow Jones Industrial Average finished at 30303.17, down 633.87 or -2.31% and the tech-weighted NASDAQ Composite closed at 13270.60, down 355.47 or -3.19%.

Each of the three major U.S. indexes saw their biggest daily percentage decline since October 28. The declines also pushed the benchmark S&P Index into negative territory for the year.

The CBOE Market Volatility Index, often used as a gauge for investor anxiety, rose as high as 34.38, its highest level since November 4.

Speculative Buying Frenzy in Heavily Shorted Stocks

Shares of videogame retailer GameStop Corp and movie theater operator AMC Entertainment Holdings Inc 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.

GameStop fell 23% in extended trading, while AMC Entertainment dropped 38%. Other highly shorted names that had rallied this week, including Bed Bath & Beyond and National Beverage, also fell after hours. Some fear that hedge funds being squeezed could be forced to reduce their equity holdings to raise cash.

Federal Reserve Delivers as Expected

The U.S. Federal Reserve kept overnight interest rates 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.

“The economy is a long way from our monetary policy and inflation goals, and it’s likely to take some time for substantial further progress to be achieved,” Fed Chairman Jerome Powell said at his post-meeting news conference. Policy will remain “highly accommodative as the recovery progresses,” he added.

Boeing Bearish Before Opening, Tesla Bearish After Close

Boeing Co fell and was among the top drags on the Dow after the planemaker took a hefty $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.

Tesla dropped more than 3% in extended trading after the electric car maker posted worse-than-expected earnings for the last quarter. The company also said it expects annual average delivery growth of 50% going forward.

Apple Reported Blowout Earnings but Stock Dropped Anyway

Apple turned in its largest revenue on record at $111.4 billion in its fiscal first-quarter earnings report for fiscal 2021. Sales for every product category rose by double-digit percentage points. Shares of the tech giant dipped 3%, however.