New York Stock Market Plummets... GameStop Short Selling Losses Trigger Hedge Fund Sell-Off?

[Asia Economy New York=Correspondent Baek Jong-min] GameStop stock, which attracted attention due to the battle between short sellers and individual investors, continued its soaring trend, but the New York stock market could not avoid a sharp decline. The fear index surged by 60% amid concerns about the possibility of further market adjustments.

[Image source=Reuters Yonhap News]

On the 27th (local time), the New York stock market plunged across the board as concerns over poor corporate earnings and caution regarding COVID-19 vaccine distribution spread. In particular, worries are growing that the sharp rise in GameStop's stock price may have triggered the overall market downturn.

The Dow Jones Industrial Average fell 633.87 points (2.05%) to close at 30,303.17, the S&P 500 index dropped 98.85 points (2.57%) to 3,750.77, and the Nasdaq index declined 355.47 points (2.61%) to 13,270.60. The Dow experienced its largest drop in three months, and the S&P 500's year-to-date return turned negative.

As the earnings season opened, Boeing's poor performance negatively affected investor sentiment, but there is also speculation that short sellers sold other holdings to offset losses incurred from GameStop stocks, contributing to the market decline.

On the same day, AMC, a theater chain, saw its stock price surge by 300%, and GameStop's stock rose by 134%. Individual investors' buying momentum appears to be spreading to other heavily shorted stocks.

As cases of stock prices rising due to concentrated buying by individual investors continue, concerns have been raised by U.S. media, the securities industry, and even the White House.

On this day, TD Ameritrade restricted trading of GameStop and AMC stocks. Subsequently, other brokerage firms such as Vanguard, Fidelity, and Charles Schwab also imposed trading restrictions on these stocks.

White House Press Secretary Jen Psaki mentioned, "The economic team is monitoring the trend of GameStop's stock price." The U.S. Securities and Exchange Commission (SEC) also warned, "We are monitoring market volatility and reviewing whether there are any issues with investments in these stocks in cooperation with other regulatory agencies."

Federal Reserve Chairman Jerome Powell, during a press conference after maintaining interest rates, described the U.S. economic outlook as highly uncertain and stated that the recent market surge reflected expectations for vaccines rather than zero interest rates, which was interpreted as a factor that increased the market's decline.

The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as the 'fear index,' surged by 60%, surpassing the 30 mark.

Although the stock market plunged, U.S. Treasury yields remained stable. The 10-year U.S. Treasury yield fell by 0.027 percentage points to 1.013%. Despite the decline in yields, the dollar index rose 0.47% to 90.575.

March delivery West Texas Intermediate (WTI) crude oil closed at $52.85 per barrel, up 0.5% ($0.24) from the previous day. February delivery gold closed at $1,844.90 per ounce, down 0.3% ($6).

This content was produced with the assistance of AI translation services.