By Will Horner and Paul Vigna 

Major stock indexes suffered their sharpest one-day losses since October on Wednesday amid concerns about Covid-19 vaccine distribution, while traders were also captivated by the frenzied trading in GameStop and other heavily shorted stocks.

GameStop surged $199.53, or 135%, to $347.51 and AMC Entertainment Holdings soared $14.94, or 301%, to $19.90, part of a battle between day traders and short sellers. Both stocks are up more than 800% in January. Until Wednesday, the broader market's moves had been relatively muted in recent sessions, despite the wild swings in a handful of individual stocks.

The blue-chip index fell 633.87 points, or 2.1%, to 30303.17, extending its losing streak to five sessions, and the S&P 500 dropped 98.85 points, or 2.6%, to 3750.77. The Nasdaq Composite lost 355.47 points, or 2.6%, to 13270.60. All three indexes posted their biggest one-day losses on a point and percentage basis since Oct. 28.

New variants of the Covid-19 virus are showing up around the world, putting fresh pressure on governments to get their populations vaccinated. That exacerbates the peril in any delays in the vaccination programs and the ability to eventually end lockdowns or other restrictions.

AstraZeneca has said problems at a European factory would sharply cut supplies to EU nations. The EU this week pressured the drugmaker to instead supply it with vaccine from its U.K. factories if need be, which would then affect the rollout in the U.K.

Meanwhile, the Biden administration said Tuesday it would purchase enough additional coronavirus shots to vaccinate most of the U.S. with a two-dose regimen by the end of summer. A number of cities and other jurisdictions have reported vaccine shortages.

"I think the market expected that by now we would be talking about loosening, not tightening restrictions," said Hani Redha, a portfolio manager at PineBridge Investments. "On the vaccine rollout, this is very problematic for the near term. It is very critical for shaping the growth bounce back, and these issues are just adding more delay to that."

While questions about the pace of vaccine rollout and the economic recovery are real, they aren't new issues for investors, said Victoria Fernandez, the chief market strategist at Crossmark Global Investments. Given the market's run to new highs, it isn't surprising that investors are a bit worn out.

"I really think it's a hodgepodge of different things and the market is saying, you know what, we're taking a breather," she said.

The most fascinating market dynamic, however, remains the spectacular, day-trader-driven gains for heavily shorted stocks like GameStop.

The gains have been driven largely by day traders on the social-media message board Reddit, who have en masse been buying up the stock, squeezing short sellers. After markets closed Tuesday, Tesla Chief Executive Elon Musk tweeted "Gamestonk!!" in an apparent reference to the frenzied trading.

GameStop's rise this year on its own comprises nearly a full percentage point of the small-cap S&P 600's gains, according to S&P Dow Jones Indices. The index is up 9.9% so far this year, while the S&P 500 is down 0.1%. GameStop is now the index's largest issue; at the end of 2020, less than a month ago, it ranked 287.

The Reddit crowd's gang-pile into these stocks resembles century-old pump-and-dump schemes from the 1920s, said Hans Olsen, the chief investment officer at Fiduciary Trust Co.

Back then, stock operators would pool money to pump up the price of a targeted stock. Once the public caught wind of the moves and bought, the operators would sell at a profit. Those schemes, of course, didn't have a convenient platform like Reddit through which traders could coordinate.

"This is old stuff coming new again," Mr. Olsen said, "and facilitated in a way we haven't seen, by social media."

This kind of trading is also a warning sign that the markets -- driven by a central-bank policy tilted toward risk-taking -- are dangerously out of balance, Mr. Olsen said.

In the afternoon, the Federal Reserve said it would maintain its current monetary policies while acknowledging the economy has softened in recent weeks. But the first question Jerome Powell fielded in his press conference was about the trading in GameStop.

He said he wasn't going to comment on a particular stock or day's market activity. In response to another question about financial bubbles, he played down the role of Fed policy in driving asset prices higher.

In corporate news, investors parsed results from AT&T, Blackstone Group and Boeing, while Apple, Facebook and Tesla reported after the close.

"The bar for tech stocks to beat is quite high because we were still in lockdown and yet they do seem to be doing well relative to those higher expectations," said Mr. Redha.

Shares of Microsoft rose 57 cents, or 0.3% to $232.90 after the company reported record quarterly sales Tuesday. Walgreens Boots Alliance was up $1.99, or 4.1%, to $51.18 after the drugstore chain named Starbucks operating chief Rosalind Brewer as its next chief executive.

In commodities markets, U.S. crude rose 0.5% to $52.85 a barrel. Gold prices fell 0.3% to $1,844.90. The U.S. 10-year Treasury note's yield was down slightly at 1.014%.

Overseas, the pan-continental Stoxx Europe 600 was down 1.2%, while in Asia, stock indexes were mixed. Japan's Nikkei 225 rose 0.3%, Hong Kong's Hang Seng fell 0.3%, while in mainland China, the Shanghai Composite edged up 0.1%.

Write to Will Horner at William.Horner@wsj.com and Paul Vigna at paul.vigna@wsj.com

(END) Dow Jones Newswires

January 27, 2021 17:46 ET (22:46 GMT)