Dow struggles for direction to start week amid reports of an investment fund’s massive margin call

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U.S. stocks bounced between small gains and losses at the start of trade Monday following reports that a large investment fund was forced to sell massive holdings in stocks that some fear could ripple through the broader market.

Still, the moves were muted in the face of news that former Tiger Asia manager Bill Hwang’s Archegos Capital Management had unwound big bets late last week.

How are stock markets performing?
  • The Dow Jones Industrial Average DJIA, +0.03% was little changed near 33,069.
  • The S&P 500 index SPX, -0.44% was down 3 points, or 0.1%, to 3,971.
  • The Nasdaq Composite COMP, -0.81% fell a point to 13,138.

On Friday, the Dow DJIA, +0.03% notched a 1.4% increase, the S&P 500 SPX, -0.44% added 1.6%, and the Nasdaq Composite Index COMP, -0.81% fell 0.6%.

What’s driving the market?

Markets were mostly steady, taking in stride reports that Hwang’s Archegos Capital Management sold some $30 billion in holdings, momentarily sending shock waves throughout the market, according to the Wall Street Journal, citing people familiar with the matter.

Last Friday, the sales drove shares of Discovery DISCA, -1.26% and ViacomCBS VIAC, -4.98% to register their worst one-day declines on record, even as the broader market finished sharply higher to cap a turbulent trading week.

Global investment banks Credit Suisse Group CS, -12.66% and Nomura Holdings NMR, -13.31% on Monday said they were likely to take hit due to the volatility in the market but didn’t directly name Hwang’s fund.

“A significant U.S.-based hedge fund defaulted on margin calls made last week by Credit Suisse and certain other banks,” the Credit Suisse said. “Following the failure of the fund to meet these margin commitments, Credit Suisse and a number of other banks are in the process of exiting these positions.”

“It now appears, according to reports, that the sell-off was the result of a liquidation from a fund called Archegos Capital Management, after some its positions moved offside, raising some concerns about a trickle-down effect to other stocks,” wrote Michael Hewson, chief market analyst at CMC Markets. “We’ll see whether those concerns are well founded later today,” he wrote.

The buzz around the margin call comes at the start of a holiday-shortened week, as investors brace for a fresh round of volatility. Some markets will be closed in observance of Good Friday, including those in the U.S., and some European markets will remain closed next week for Easter Monday.

Meanwhile, investors were also watching news that tugs had partially dislodged the 1,300-foot Ever Given container ship, operated by Taiwan-based Evergreen Group, which has been blocking the Suez Canal, one of the busiest trade waterways in the world. The blockage by the tanker has caused massive logjams. The removal of the ship could help to reopen the vital trade route that accounts for some 12% of global trade.

On the public-health front, the global coronavirus tally rose above 127 million on Monday, according to data aggregated by Johns Hopkins University, with the U.S. accounting for a quarter of that number, at more than 30 million.

The death toll rose above 2.78 million with the U.S. accounting for about a fifth, or 549,335. The U.S. added at least 45,552 new cases on Sunday, according to a New York Times tracker, and at least 487 people died. 

Markets have been climbing unsteadily due to worries about a resurgence of COVID-19 in Europe that has forced extended lockdown periods, even as vaccine rollouts and some $1.9 trillion in COVID in the U.S. has helped to support the domestic economy, which has also been pushing benchmark bond yields higher.

Worries about the Suez blockage, concerns about the viral spread and the possibility of a financial market contagion have all been headwinds.

“In a week that saw optimism and pessimism in equal measure, stock markets have proved to be fairly resilient in the face of a variety of factors, including extended lockdowns in Europe, vaccine nationalism, and the added wrinkle of the blockage in the Suez Canal, which now shows signs of being cleared in the next day or so,” CMC’s Hewson wrote.  

Which stocks are in focus?
  • Southwest Airlines Co. LUV, +0.78% shares rose 0.7% Monday after the airline placed 100 firm orders for the Boeing 737 Max 7 with the first 30 of those aircraft to be delivered in 2022. As part of an agreement with Boeing BA, +3.89%, Southwest also converted 70 Max 8 firm orders to Max 7 firm orders and added 155 MAX options for MAX 7 or MAX 8 aircraft for years 2022 through 2029. 
  • Cal-Maine Foods Inc. shares CALM, +0.46% were flat Monday, after the egg producer posted a far bigger-than-expected profit for its fiscal third quarter, offsetting a sales miss. 
  • Shares of Goldman Sachs Group Inc. GS, -0.39% and Morgan Stanley MS, -3.01%, which were reportedly part of the Hwang block trades, also were in focus early Monday.
  • Moderna Inc. MRNA said it has shipped the 100 millionth dose of its COVID-19 vaccine to the U.S. government and expects to meet its commitment dates for all current orders. Its shares were down nearly 3%.
  • Insurer The Allstate Corp. ALL, +0.78%  said Monday it expects to book a net loss of about $4 billion as it completes the exit of its life and annuity businesses. Allstate’s shares were up 0.3%.
  • Applied Materials Inc. AMAT shares fell 1.4% Monday after it said its agreement to purchase Kokusai Electric Corp. was terminated because the company didn’t obtain approval for the deal by Chinese regulators in time.
How are other assets faring?