Jan 28, 2021 - Economy

U.S. indexes see worst day since October amid short squeeze chaos

Wall St.

Photo: Angela Weiss/AFP via Getty Images

Equity prices tumbled Wednesday, with U.S. indexes booking their worst day since October, but traditional hedging assets like Treasury bonds, the Japanese yen and gold saw minimal gains or losses, continuing a trend that has been in place for more than a year.

By the numbers: The S&P, Dow and Nasdaq all fell by more than 2%, but the benchmark 10-year U.S. Treasury yield declined by just 1 basis point from its closing level on Tuesday.

  • The dollar index edged higher but gained just 0.5% and the yen fell by 0.4%.
  • Gold declined by 0.5% and silver fell by 0.9%.
  • Even Bitcoin, which has been heralded as a potential new safe-haven asset to replace precious metals, declined by 1.5%, sinking back toward the $30,000 per coin level where it began the year.

Why it matters: The lack of safe-haven assets that rise when stock prices fall could prove damaging for investors if markets reverse their long-term bull run.

What's next: Wednesday's selling pressure looks to have been caused at least in part by hedge funds needing to sell some of their favored stocks to meet margin calls after big losses in their short positions. That means they're selling out of winners like Square and Peloton in order to have enough cash to stay afloat. That could continue.

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