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Stocks tumbled Wednesday afternoon, as Federal Reserve Chairman Jerome Powell underscored the long road to economic recovery ahead, following its first policy meeting of 2021.

Investors were transfixed by trading in videogame retailer GameStop Corp. GME, which has surged more than 1,600% this month, as well as in a few other key heavily shorted stocks favored by an army of individual investors organized via Reddit’s wallstreetbets forum.

What are major benchmarks doing?

  • The Dow Jones Industrial Average was down 513 points, or 1.7%, at about 30,425.
  • The S&P 500 slid 88 points, or 2.3%, to trade near 3,759.
  • The Nasdaq Composite fell 330 points, 2.4%, to trade near 13,296.

Stocks ended a choppy session with small losses on Tuesday, with the Dow, S&P 500 and Nasdaq each declining 0.1%. The Dow fell for a fourth straight session, while the Nasdaq broke a five-day win streak. Both the Nasdaq and S&P 500 had closed at records on Monday.

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What’s driving the market?

There were no surprises from the Fed on Wednesday, which opted to hold interest rates steady near zero and left unchanged its massive bond-buying program, following its first policy meeting of 2021. But it still was another day of volatile trading in U.S. equities.

Fed Chair Jerome Powell stressed that the economy remained far from economic recovery, but also underscored that recent asset gains have been driven largely by optimism about the rollout of vaccines to combat the coronavirus pandemic, as well as by fiscal policy, and not necessarily by accommodative monetary policy.

Even after being asked several times during an afternoon press conference, Powell refused to comment on GameStock’s wild trading action, instead saying the central bank broadly keeps an eye on valuations and financial stability, along with unemployment and inflation.

The Fed update comes as investors fret about a sudden surge in shares of GameStop and a handful of other companies that appear to be caught in the crosshairs of a short squeeze battle between individual investors and hedge funds who have had to sell better known names to cover loss on their short positions.

See: GameStop and AMC stocks soar on another day of wild trading in heavily shorted companies

Shares of AMC Entertainment Holdings Inc.  BlackBerry Ltd.   headphone maker Koss Corp.  and retailer Express Inc.  have all experienced sharp moves without any apparent news to act as a driver, while facing a large amount of bets against them.

In response, a few major brokerage houses on Wednesday moved to restrict trading in shares of some companies subject to frenetic price surges and buying by individual investors on social-media platforms.

Read: GameStop, AMC trading is now being restricted at TD Ameritrade, Schwab

“They have kept rates near zero for the unemployment part of their mandate,” said Zhiwei Ren, a portfolio manager at Penn Mutual Asset Management, and its lead quantiative research and derivative hedging.

But Ren also said he’s keeping his eye on potential asset bubbles forming because of extra government spending and loose monetary policy to combat the pandemic, calling the trend of individual investors banding together online “like a revolution.”

“I’ve read the post, they are well informed. You can tell they have done their homework,” he said.

Mark Stoeckle, chief executive officer at Adams Funds, told MarketWatch that he thought much of the day’s volatility was being driven by “the short-selling community is being squeezed.”

“You can argue about whether that makes sense, but at the end of the day, there’s a big short squeeze on a number of stocks.”

CNBC reported that hedge fund Melvin Capital had exited its short position in GameStop at a hefty loss. Citron Research’s Andrew Left, in a YouTube video, said he exited the bulk of his short positions in the stock.

Investors remain concerned that speculative behavior may be a sign the market is overvalued and a pullback could be near. GameStop shares were up more than 125% on Wednesday, at last check.

“The other side is that it’s impacting stocks that really don’t matter,” Stoeckle said, speaking to the small size of shares available from GameStop and others caught up in the frenzy, relative to the broader stock market.

“Everybody wants to drive slowly past the train wreck,” he said.

Though the trend for major U.S. stock indexes has been largely up in recent weeks, in line with positive corporate results, declining coronavirus cases, and expectations for more fiscal stimulus by Congress, stock indexes have seesawed back and forth over the past few weeks, with volatility, as measured by the CBOE Volatility Index up sharply, noted Don Calcagni, chief investment officer for Mercer Advisors.

“The options market might be pricing in some sort of disappointment around another rescue package,” Calcagni said in an interview. “Ultimately, everything comes back to COVID. That’s the number one macro issue that has to get resolved. We need to see the Biden administration’s plan for vaccine distribution.”

Investors also continued to sift through a heavy round of corporate earnings, including results from Microsoft Corp. which reported strong results late Tuesday. Updates from Facebook Inc. Apple Inc. and Tesla Inc. are due after the closing bell Wednesday.

In economic data, U.S. durable goods orders increased for the eighth month in a row, but orders excluding transportation were up 0.6%, less than economists had forecast.

Related: Financial markets are complacent and exuberant — a formula that raises risk of correction, IMF warns

Which companies are in focus?

shares were flat after the company’s results easily topped expectations late Tuesday, with the software giant surpassing $40 billion in sales and $15 billion in profit in a quarter for the first time.

  • Shares of Advanced Micro Devices Inc. were down 6.1%, even after the chip maker topped $3 billion in quarterly revenue for the first time, and delivered results and outlook that both beat Wall Street expectations.
  • Shares of coffee retailer Starbucks Corp. tumbled 7% after reporting mixed results Tuesday afternoon.
  • Walgreens Boots Alliance shares rose 4.7% after the pharmacy chain late Tuesday said it had tapped Starbucks executive Roz Brewer to serve as its new chief executive.
  • Shares of Bed Bath & Beyond Inc., another favorite of short-squeezers, were up 33%.
  • Shares of Boeing Co.  fell 4.2% after the aerospace and defense giant reported a fourth-quarter loss that widened to more than $8 billion. 
  • How are other markets doing?

    • Oil prices closed higher, with the U.S. benchmark up 0.5% settling at $52.85 a barrel on the New York Mercantile Exchange. Gold futures lost 0.2% to settle at $1,844.90 an ounce, a fifth down day in a row.
    • The yield on the 10-year Treasury note   was down about 2 basis points to 1.02% as traders pivoted away from riskier assets. Yields and bond prices move in opposite directions.
    • The ICE U.S. Dollar Index   a measure of the U.S. currency against a basket of six major rivals, jumped 0.6%.
    • The pan-European Stoxx 600 stock index   fell 1.2%, while London’s FTSE 100  slipped 1.3%.
    • In Asia, stocks were mixed. The Shanghai Composite  edged up 0.1%, Hong Kong’s Hang Seng Index   was 0.3% lower, and Japan’s Nikkei 225 index  gained 0.3%.

    Read next: Inflation inflection? It’s coming, this analyst says

    William Watts contributed reporting

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