Market Snapshot: U.S. stocks open lower as investors focus on tech earnings, await Fed

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Stocks opened sharply lower Wednesday, as investors focused on a stream of earnings reports from technology companies and awaited the outcome of the Federal Reserve’s first policy meeting of 2021.

Investors also remained transfixed by trading in videogame retailer GameStop Corp. GME, which has surged more than 600% this month as an army of individual investors organized via Reddit’s wallstreetbets forum and other platforms took aim at heavily shorted stocks. Some of the weakness in equities Wednesday was attributed to short sellers attempting to cover their positions.

What are major benchmarks doing?

The Dow Jones Industrial Average DJIA, -1.41% was down 331 points, or 1.1%, at about 30,606.
The S&P 500 SPX, -1.41% slid 50 points, or 1.3%, to trade near 3,799.
The Nasdaq Composite COMP, -1.22% tumbled 204 points, 1.5%, to start trading near 13,422.

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.

What’s driving the market?

Investors continued to sift through a heavy round of corporate earnings, including results from Microsoft Corp. MSFT, +2.71%, which reported strong results late Tuesday. Updates from Facebook Inc. FB, -2.56%, Apple Inc. AAPL, +0.35% and Tesla Inc. TSLA, -0.63% are due after the closing bell Wednesday.

Though the trend for major U.S. stock indexes has been largely up, in line with positive corporate results, declining coronavirus cases, and expectations of a centrist Congress, markets have seesawed back and forth over the past few weeks, and volatility, as measured by the CBOE Volatility Index VIX, +22.37%, is 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.”

The Federal Reserve will conclude its first policy meeting of 2021 on Wednesday afternoon, releasing a policy statement at 2 p.m. Eastern, followed by Chairman Jerome Powell’s news conference at 2:30 p.m.

The Fed isn’t expected to make any policy moves and Powell is likely to reiterate the central bank’s commitment to maintaining loose monetary policy until after inflation has exceeded its 2% target.

Read: Think higher inflation is coming? The Fed will believe it when it sees it

“An implicit promise that the Fed will keep its foot firmly on the QE gas would argue for a retreat in the dollar and some upside in equities,” though any reaction is likely to be minor since that’s what investors already expect, said Marios Hadjikyriacos, investment analyst at XM, in a note.

“In fact, the risks here may be asymmetric, because if markets sense that Powell could backtrack on this promise or that other [Federal Open Market Committee] officials don’t share his views, it could come as a ‘shock’ and spark much bigger reactions in the opposite direction,” he said.

The GameStop saga continued, with CNBC reporting that hedge fund Melvin Capital had exited its short position at a hefty loss. Also, Citron Research’s Andrew Left, in a YouTube video, said it had also exited the bulk of its short positions in the stock. GameStop shares trimmed sharp premarket gains, but remained up 66%.

See: It isn’t just GameStop: Here are some of the other heavily shorted stocks shooting higher

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.

Which companies are in focus?

Microsoft MSFT, +2.71% shares were up 2.6% in early trade after its 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. AMD, -5.83% were down nearly 6% in morning action, 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. SBUX, -5.46% slipped 3.1% after the bell, after reporting mixed results Tuesday afternoon.
Walgreens Boots Alliance WBA, +5.72% shares jumped 6% after the pharmacy chain late Tuesday said it had tapped Starbucks executive Roz Brewer to serve as its new chief executive.

How are other markets doing?

Oil prices were little changed, with the U.S. benchmark CL.1, -1.39% trading near $52.64 a barrel on the New York Mercantile Exchange, ahead of a report on inventory. Meanwhile, gold futures GC00, -0.98% lost 0.5% to $1,842.40 an ounce, on track for a fifth down day in a row.
The yield on the 10-year Treasury note TMUBMUSD10Y, 1.014% was down about 2.5 basis points to 1.015% as traders pivoted away from riskier assets. Yields and bond prices move in opposite directions.
The ICE U.S. Dollar Index DXY, +0.76% a measure of the U.S. currency against a basket of six major rivals, jumped 0.4%.
The pan-European Stoxx 600 stock index SXXP, -1.81% fell 1.5%, while London’s FTSE 100 UKX, -1.95% slipped 1.4%.
In Asia, stocks were mixed. The Shanghai Composite SHCOMP, +0.11% edged up 0.1%, Hong Kong’s Hang Seng Index HSI, -0.32% was 0.3% lower, and Japan’s Nikkei 225 index NIK, +0.31% gained 0.3%.