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Stocks Sour on Small-Cap Turmoil, Hedge Funds Squeezed

EQUITIES

The S&P 500 fell sharply Wednesday, with the index dropping over 2.5% as turmoil in smaller-cap stocks undermined investor confidence that had resulted in new all time highs earlier in the week.

The e-mini S&P shed close to 100 points, narrowing the gap with the 50-dma support at 3706.10, a level not broken since late October.

Rallies in some of the most-shorted stocks in the US including Gamestop, AMC and BlackBerry resulted in further pain for short-selling hedge funds. This raised speculation that these funds could be forced to bailout of longs among the larger-cap names in order to finance margin calls and other loss-making positions.

Communication services and consumer discretionary names were hit the hardest, but all sectors traded lower Wednesday.

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