Archaos

By Nicholas Jasinski |  Monday, March 29 Marginal. U.S. stock indexes ended mixed today, with the Dow Jones Industrial Average ticking up 0.3% to a record high, while the S&P 500 slipped 0.1% and the Nasdaq Composite lost 0.6%. Defensive sectors like utilities and consumer staples rose, while the rest of the market fell. Energy shares were the biggest losers in the S&P 500. Small-caps continued their recent pullback, with the Russell 2000 dropping 2.8%. And U.S. stock exchanges saw their lowest trading volume day of the year so far. But there was still more than plenty to talk about on Wall Street today, in particular the fallout from a series of massive margin calls on Archegos Capital Management over the past few days. Shares of affected companies continued to sell off today, while stocks of several major investment banks that had served as lenders to the hedge fund were also hit. Multiple reports pointed to Archegos, the family office of former Tiger Management trader Bill Hwang, as the source of nearly $30 billion in block sales of stocks late last week, including ViacomCBS, Discovery, Baidu, and Tencent Music Entertainment Group. Archegos had taken concentrated and highly levered bets on all of those stocks, which rapidly moved against the fund last week. It had borrowed money to buy the shares from several prime brokerages—divisions of investment banks that provide a variety of services like trade processing and lending to hedge funds and other institutional investors. ViacomCBS and Tencent Music Entertainment stocks both lost more than 30% of their value from Monday through Thursday last week, while Discovery and Baidu each fell more than 20%. That prompted margin calls from Archegos' prime brokerages late last week, which it appears it wasn't able to meet. As a result, the lenders began to liquidate Archegos' positions to recoup their capital. That only compounded the declines. Archegos’ roster of prime brokerages included Goldman Sachs Group, Credit Suisse, Morgan Stanley, and Nomura Group. Both Nomura and Credit Suisse told investors today that they expected to face steep losses on the margin they had extended to Archegos. Their stocks closed down 14.1% and 11.5%, respectively. The fallout spread through the investment banking sector more broadly, and the Invesco KBW Bank exchange-traded fund closed down 2.3% today. (More on Archegos below.) In other news, the Ever Given container ship that had run aground and had been blocking the Suez Canal for most of the past week was refloated today. Salvage crews and tug boats had been working around the clock to get the waterway passable again, with some 450 container ships, oil tankers, dry bulk carriers, and other vessels stuck waiting on either ends. More than 10% of the world’s trade passes through the Suez Canal, and its blockage had been holding up some $10 billion worth of cargo a day. While the Suez Canal is now open to traffic again, it could still take weeks for global supply chain disruptions to dissipate. Just clearing the waiting backlog of ships will take as much as three days, and other ships have already embarked on a two-week journey around Africa.

 

DJIA: +0.30% to 33,171.37 S&P 500: -0.09% to 3,971.09 Nasdaq: -0.60% to 13,059.65 The Hot Stock: CenterPoint Energy +3.1% The Biggest Loser: Penn National Gaming -7.9% Best Sector: Utilities +1.1% Worst Sector: Energy -1.2%