Markets got off to a slow start this week but rallied to end the week with the S&P 500 finishing above 4,000 to at the close of the shortened trading week.
Equities took a hit Monday after the failure of Archegos Capital Management to meet a margin call and many of the world's largest financial institutions were reportedly exposed to the family office.
The Suez Canal was finally reopened after the Ever Given was freed Monday and officials expect the backlog to be relieved by the end of the week. Egypt is expecting roughly $1 billion in damages over the container ship remaining stuck in the canal for nearly a week. Finally, President Biden unveiled the administration’s $2.25 trillion infrastructure plan focusing on transportation projects.
A Big Fund Goes DownArchegos Capital Management failed to meet a margin call on Friday last week, resulting in $20 billion worth of block trades in stocks as banks scrambled to close positions. The firm, which not technically a hedge fund, but a family office as founder Bill Hwang was banned from running or working at a securities firm until 2020 after pleading guilty to insider trading in 2012.
Hwang's firm was reportedly heavily leveraged and may have had up to $50 billion in open positions. Many large banks such as Goldman Sachs (GS), Deutsche Bank (DB), Morgan Stanley (MS), Credit Suisse (CS), and others were exposed to the fund with some escaping with minimal losses while others told their shareholders the companies are facing significant losses. These banks were scrambling to unload shares of many Chinese tech firms and U.S. media companies in the wake of the firm's collapse.
Two of the biggest stocks exposed to Archegos were ViacomCBS (VIAC) and Discovery (DISCA). Both of these stocks fell dramatically on Friday and traded mixed this week with VIAC losing another 6.6% while DISCA gained 4.6%. Goldman and Deutsche reported they were able to unload their positions ahead of the rest of the pack and escaped relatively unharmed. However, Credit Suisse and Nomura Holdings (NMR) both said they are facing "significant" losses.
Build Back BetterThe White House unveiled its newest stimulus bill on Wednesday with a $2.25 trillion infrastructure plan. The transportation-focused package intends to rebuild infrastructure such as roads and bridges with long term projects primarily to give firms confidence for making future investments. The proposal is also just the first of two Biden is expected to announce with the second expected to be announced at a later date.
The bill has already received plenty of criticism from both sides of the aisle with Democrats saying the package isn't nearly expansive enough to address aging infrastructure. Republicans meanwhile pointed to tax increases, and progressive priorities cited as infrastructure, and the overall size as problems with the proposal. Representative Sam Graves of Missouri said "We cannot begin thinking of bills that spend trillions as the new normal."
The bill is a long way from being passed into law as both sides have concerns with not nearly as many Democrats supporting the bill as the previously passed $1.9 trillion bill from the new administration. With skeptical Democrats wanting an even larger more expansive bill it seems hard to envision Republicans jumping on board with that proposition. Biden insists he wants the bill to be bipartisan even as that prospect seems unlikely given the initial reactions.
Jobs ReportStock markets might be closed tomorrow but the March Employment Situation Report will still be released on the first Friday of the month. Economists expect 630,000 jobs were added last month, the most since October. The unemployment rate is also expected to fall to 6.0% from 6.2% in February.
Initial claims rose to 719,000 last week from 658,000 the previous week, estimates were for 679,000 claims. Continuing claims dipped to 3.79 million for the week ending March 20.
All said, the S&P 500 gained 2.82%, the Dow Jones Industrial Average rose 1.64%, the NASDAQ added 3.87%.