(AP) – The stock market posted its biggest drop since October Wednesday, led by declines in several Big Tech companies. The S&P 500 gave up 2.6%. The benchmark index had set a record high just two days earlier. The selling was broad, though technology giants including Facebook, Netflix and Google’s parent company accounted for a big part of the pullback. The stock of beleaguered video game seller GameStop more than doubled as an army of small investors ganged up against hedge funds that made huge bets that the stock would fall. The Federal Reserve stressed its commitment to keep interest rates low.
THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.
The Dow Jones Industrial Average fell more than 600 points in afternoon trading Wednesday as a broad sell-off on Wall Street put the market on track for its worst day since late October.
The S&P 500 was down 2.6% as of 3:52 p.m. Eastern time, its biggest decline since it lost 3.5% on October 28. The Dow skidded 2.1% and the Nasdaq slid 2.7%. The selling was broad, though Big Tech companies such as Facebook, Netflix and Google’s parent company led the pullback.
Stocks were down from the get-go as investors focused on the outlook for the economy and corporate profits amid a still-raging coronavirus pandemic. The selling accelerated toward the end of the day, following the Federal Reserve’s latest interest rate and economic policy statement.
The selling comes amid uncertainty over whether the Biden administration will deliver on its proposed $1.9 trillion stimulus plan. 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. Expectations for another economic financial boost from Uncle Sam helped keep stocks climbing since the U.S. elections in November.
“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 Federal Reserve announced Wednesday that it would keep its low interest rate policies in place even well after the economy has sustained a recovery from the viral pandemic. In a statement after its latest policy meeting, Fed officials said they are keeping their benchmark short-term rate pegged near zero and said they would keep buying Treasury and mortgage bonds to restrain longer-term borrowing rates and support the economy. Stocks were little changed after the 2 p.m. Eastern release of the Fed statement.
Meanwhile, investors continued to focus on the profit prospects for Corporate America. This is the busiest week so far of quarterly earnings reporting season for U.S. companies. Apple and Facebook will report their quarterly results after Wednesday’s closing bell.
More than 100 companies in the S&P 500 are scheduled to tell investors this week how they fared during the last three months of 2020. As a whole, analysts expect S&P 500 companies to say their fourth-quarter profit fell 5% from a year earlier. That’s a milder drop than the 9.4% they were forecasting earlier this month, according to FactSet.
Shares of GameStop more than doubled as the video game retailer remains caught in a tug-of-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.
Boeing dropped 4.1% after the aircraft manufacturer posted its largest annual loss in the company’s history, mostly due to the grounding of Boeing’s 737-MAX fleet.
Markets have meandered since last week as investors weighed solid corporate earnings results against renewed worries that troubles with COVID-19 vaccine rollouts and the spread of new variants of coronavirus might delay a recovery from the pandemic.
“The real economy isn’t reflective of what’s happening in financial markets and there really is a disconnect there,” said Charlie Ripley, senior investment strategist for Allianz Investment Management. “Investors have to be mindful of that gap.”
The fate of President Joe Biden’s stimulus plan, which includes $1,400 checks for most Americans and other support for the economy, remains a question for investors. On Tuesday, Senate Majority Leader Chuck Schumer said Democrats are prepared to push ahead with the relief package, even if it means using procedural tools to pass the legislation without Republicans.
“That’s certainly one of the factors putting a little bit of pressure on markets,” Ripley said. “Maybe that’s just the realization that growth expectations built into market around fiscal stimulus may not come as expected.”
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