Shares fall, led by financial institution shares as traders weigh the affect of the margin name router
US stocks fell Monday on weakness in bank stocks caught in the downtrend in margin call on Friday as investors began to see the ripple effect of the forced block deals.
The Dow Jones Industrial Average fell 130 points. The S&P 500 fell 0.6% from a record high and the Nasdaq Composite 0.7%.
ViacomCBS and Discovery stocks fluctuated after strong selling pressure last week. The two companies were believed to have been affected by the forced liquidation of positions in the multi-billion dollar family office Archegos Capital Management, a source familiar with the situation told CNBC.
Discovery increased about 2% while ViacomCBS declined more than 5%. The two companies had each lost 27% in the sale on Friday.
Elsewhere, Boeing gained 3% after it was revealed that Southwest Airlines placed 100 orders for the airliner’s 737 Max jet. The first 30 jets are to be delivered in 2022.
Credit Suisse stocks fell 13% as the bank warned that first quarter results would be “severely” impacted by exiting hedge fund positions in connection with the forced sale. Nomura also warned it could be hit, sending its shares up nearly 15%.
Bank stocks weighed on Dow industrials, with Goldman Sachs down more than 3% and JPMorgan Chase down 1.4%. The weakness came as government bond yields fell earlier in the week.
Although the market has been hit by the Archegos stumble, the situation is unlikely to have lasting effects on the broader market, according to Bespoke Investment Group.
“While other funds may find themselves in chaos, we cannot see how this specific auto crash of a trade via counterparty failure is spreading throughout the financial system,” Bespoke said on his morning note. However, the company cautioned that investors “should get used to the world’s GMEs and Archegos as they are more common even when their effects are contained”.
On Friday, all three major benchmarks rebounded by the end of their session highs, and the blue-chip Dow closed about 450 points higher. The S&P 500 eventually rose 1.7% to hit a record high. The Nasdaq Composite erased a 0.8% loss and ended up 1.2% on Friday.
Traders are preparing for increased volatility during this week with shortened public holidays, with the end of retirement being rebalanced between pension funds and other major investors at the end of the quarter. The recent rapid surge in bond yields could set money managers up for big adjustments in their portfolios.
The Dow and S&P 500 are up 6.9% and 4.3% respectively so far in March. However, the tech-heavy Nasdaq is down 0.4% this month as some investors jumped soaring tech names on rising yields.
Investors are waiting for updates from President Joe Biden about his infrastructure plan, which could cost north of $ 3 trillion. The president is expected to reveal his plan when he travels to Pittsburgh on Wednesday, as well as detailing how he will be paid. White House Press Secretary Jen Psaki said Sunday Biden plans to roll out two packages in the coming months, the first for infrastructure and the second for health and family care.
“The market doesn’t set very high chances that this infrastructure / tax plan will materialize, and while Biden is unlikely to get everything he asked for, Congress Democrats and the White House are VERY keen to get some substantial bills off the ground in the months ahead “Said Adam Crisafulli, founder of Vital Knowledge, in a note.
The exchange is closed for Good Friday, but the job report for March is due to be published this morning. Economists estimate that 630,000 jobs were created in March and the unemployment rate fell from 6.2% to 6%, according to the Dow Jones.