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The banking sector came under severe pressure as US-based Archegos Capital had to liquidate $20 billion worth of stocks owing to some of the over-leveraged positions.
On Monday, March 29, the Dow Jones Industrial Average (INDEXDJX: .DJI) ended the trading day 100 points higher. Interestingly, Dow Jones (DJIA) changed its trading movement after registering 160 points loss earlier that day.
The overall stock market was under pressure earlier on Monday amid the downdraft from Friday’s margin call, in the banking sector. Also, US-based Archegos Capital had to liquidate $20 billion worth of stocks which led to major pressure on the banking stocks.
Credit Suisse Group AG (NYSE: CS) stock tanked 11.5% as the banking giant warned that it will face a severe hit during its Q1 2021 results. This is because the bank had to exit several hedge fund positions due to forced selling.
Besides, Nomura also made a similar announcement cautioning investors and sending its shares 14% south. Thus, banking stocks put severe pressure on Dow Jones (DJIA). On Monday, Morgan Stanley (NYSE: MS) dropped 2.6% while JPMorgan Chase & Company (NYSE: JPM) tanked 1.6%.
Also, the government bond yield edged higher putting pressure on the market. The Archegos Capital episode has really made investors worried. But Bespoke Investment Group thinks that it’s unlikely to have lasting impacts on the broader market. In a note to investors on Monday, Bespoke wrote:
“While other funds may be caught in the mess, we fail to see how this specific car crash of a trade ends up propagating across the financial system via counterparty default”. However, the firm did caution that investors should “get used to the GMEs and Archegos of the world, because they seem to be happening with more frequency even if their fall-out is contained.”
Market Volatility to Continue Ahead This Week
With quarter-end rebalancing among pension funds and other big investors, traders are expecting higher volatility ahead this week. Besides, the advancements in bond yields could also put money managers on their toes. So far in March 2020, both Dow Jones and S&P 500 have surged 7.2% and 4.2%, respectively.
Wall Street is also closely watching the developments in the Joe Biden administration for the infrastructure plans, a bill that could likely cost above $3 trillion. The President could possibly unveil this plan on Wednesday. Adam Crisafulli, founder of Vital Knowledge, said:
“The market isn’t placing very high odds on this infrastructure/tax blueprint coming to fruition and while Biden probably won’t get everything he’s asking for, Congressional Democrats and the White House are VERY intent on passing some substantial bills in the coming months”.
However, there’s still some optimism around the jobs data for March releasing the coming Friday.