Stocks Decline Amid Archegos Fallout Speculation: Markets Wrap

Stocks Decline Amid Archegos Fallout Speculation: Markets Wrap

(Bloomberg) — U.S. stocks dropped from record highs as investors weighed the potential fallout from forced block sales on the rest of Wall Street. Oil rose and Treasury yields climbed higher.

The financials sector weighed on the benchmark S&P 500 for much of the day following revelations that banks including Goldman Sachs Group Inc. and Morgan Stanley liquidated holdings in Bill Hwang’s family office Archegos Capital Management on Friday after he failed to meet margin calls. Boeing Co. lifted the Dow Jones Industrial Average to another all-time high after the aircraft maker announced a large order. The Nasdaq Composite finished in the red.

Credit Suisse, Nomura Slump as Banks Tally Archegos Damage

“Investors are whistling in the dark as they try to determine how wide the Archegos-related pain will spread,” said Adam Phillips, director of portfolio strategy at EP Wealth Advisors. “You’re seeing a tug-of-war play out between those who believe the situation is benign and those who worry about a systemic risk.”

Small ripples of the forced unwind were felt in credit markets. Nomura had to take the rare step of canceling a bond deal that had already priced after its loss warning. The investment grade credit default swaps index, a gauge of U.S. credit fear, was relatively calm, even though traders are demanding a higher cost to hedge against losses on the debt of banks that have been caught up in the Archegos situation, including Nomura and Credit Suisse.

A dollar gauge rose and 10-year U.S. Treasury yields pushed higher. The Stoxx 600 gauge extended its highest level in 13 months.

Investors have been focusing on the strength of the recovery, aided by vaccines, and inflation risks. Later this week, U.S. President Joe Biden plans to unveil a further stimulus program with a tilt toward infrastructure. U.S.-China ties are also in focus, after a report that Washington isn’t ready to lift tariffs on Chinese imports in the near future, but may be open to trade talks.

“Now, as we talk about additional stimulus — there will still be some of that — but you are going to have to start to balance it with the proposed tax increases,” said Jeff Mills, chief investment officer of Bryn Mawr Trust. “Because as we talk about more and more spending, it becomes very clear that taxes are going to increase, it’s just a matter of by how much.”

West Texas Intermediate crude swung between gains and losses before turning higher. Traders focused on the demand impact of renewed coronavirus lockdowns before the OPEC+ policy discussions on Thursday. Meanwhile, the Ever Given was freed to allow the reopening of the Suez Canal.

Elsewhere, Bitcoin headed for the biggest one-day gain in two weeks.

Some key events to watch this week:

President Biden is expected to unveil his infrastructure program Wednesday.EIA crude inventory report Wednesday.OPEC+ meets to discuss production levels for May on Thursday.China Caixin PMI due Thursday.U.S. employment report for March on Friday.Good Friday starts the Easter weekend in countries including the U.S., U.K., France, Germany, Australia and Canada.

These are some of the main moves in financial markets:

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