Stocks Close Down Sharply on Fed News, Disappointing Earnings

By Barbara Kollmeyer, Teresa Rivas and Jacob Sonenshine

Updated Jan. 27, 2021 4:26 pm ET / Original Jan. 27, 2021 5:56 am ET

Federal Reserve Chairman Jerome Powell

U.S. stocks sold off Wednesday, with losses accelerating as the Federal Reserve noted the precarious state of the economic recovery and investors weighed losses from Boeing and AT&T.

The Dow Jones Industrial Average fell 634 points, or 2.1%. The S&P 500 was 2.6% lower, as was the Nasdaq Composite.

The slide accelerated in the afternoon following the Federal Reserve’s decision to keep rates near zero until the U.S. recovers from the Covid-19 pandemic and reiteration of its pledge to buy $120 billion in bonds a month. While that news came as little surprise, investors may have been spooked by the central bank noting that the recovery has slowed in recent weeks as a result of shutdowns caused by the holiday surge.

Rick Rieder, BlackRock’s Chief Investment Officer of Global Fixed Income and Head of the BlackRock Global Allocation Investment Team notes that investors might be taking too gloomy a view. “The Committee did acknowledge some weakening in headline economic data, and particularly the slowdown in employment (retail sales have disappointed of late too), but generally Chair Powell’s tone could be described as hopeful but recognizing that the economy isn’t out of the woods yet.”

Asian stocks finished their sessions mixed, with European stocks struggling for traction.

Shares of videogame retailer GameStop (ticker: GME), which have roughly quadrupled in the past week and gained 93% on Tuesday, rose another 133% on Wednesday. Gains have come amid boasting by traders in online forums about taking large bets on shares using options—often out-of-the-money calls that pay off only when the stock surges.

The top securities regulator in Massachusetts, William Galvin, said in a statement to Barron’s that trading in GameStop stock is “on my radar,” and suggests something is “systemically wrong” with the options trading surrounding the stock.

Also climbing were shares of movie-theater operator AMC Entertainment (AMC), up more than 354%. The company has also been a prominent mention on the WallStreetBets forum on Reddit and, along with GameStop, is a heavily shorted stock.

Coronavirus concerns are staying on the minds of investors, with global cases surpassing 100 million on Tuesday. The U.K. has become the first European country to reach 100,000 deaths due to Covid-19.

The U.S. death toll topped 423,000 on Tuesday, as President Joe Biden announced plans for the country to buy an additional 200 million doses of Covid-19 vaccines in a bid to get more Americans vaccinated.

Starbucks (SBUX) fell 6.5% after missing on the bottom line but beating on the top. The company earned 61 cents per share, better than the forecast 55 cents, but revenue was just $6.75 billion versus estimates of $6.93 billion.

Wendy’s (WEN) fell 2% even after Deutsche Bank upgraded the stock to Buy from Hold and raised its price target to $25 from $23.

Boeing (BA) lost 4.1% after recording its largest quarterly loss ever.

AT&T (T) fell 2.1% after it recorded a $15.5 billion write-down, related to its DirecTV unit.

Microsoft (ticker: MSFT) shares were up 0.3% after it reported better-than-expected quarterly results Tuesday.

Advanced Micro Devices (AMD) fell 0.8% even after an upbeat forecast and earnings beat.